Question 1

Changes in the interest rate help explain

Accepted Answer

A) only the slope of, not shifts of aggregate demand. 
B) only shifts of, not the slope of aggregate demand. 
C) both the slope of and shifts of aggregate demand. 
D) neither the slope nor shifts of aggregate demand. 
A) only the slope of, not shifts of aggregate demand. 
B) only shifts of, not the slope of aggregate demand. 
C) both the slope of and shifts of aggregate demand. 
D) neither the slope nor shifts of aggregate demand.

Question 2

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1

Question 3

To decrease the interest rate the Federal Reserve could

Accepted Answer

A) buy bonds. The fall in the interest rate would increase investment spending. 
B) buy bonds. The fall in the interest rate would decrease investment spending. 
C) sell bonds. The fall in the interest rate would increase investment spending 
D) sell bonds. The fall in the interest rate would decrease investment spending. 
A) buy bonds. The fall in the interest rate would increase investment spending. 
B) buy bonds. The fall in the interest rate would decrease investment spending. 
C) sell bonds. The fall in the interest rate would increase investment spending 
D) sell bonds. The fall in the interest rate would decrease investment spending.

Question 4

The short-run effects on the interest rate are

Accepted Answer

A) shown equally well using either liquidity preference theory or classical theory. 
B) best shown using classical theory. 
C) best shown using liquidity preference theory. 
D) not shown well by either liquidity preference theory or classical theory. 
A) shown equally well using either liquidity preference theory or classical theory. 
B) best shown using classical theory. 
C) best shown using liquidity preference theory. 
D) not shown well by either liquidity preference theory or classical theory.

Question 5

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Accepted Answer

A) increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. 
B) increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C) decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D) decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices. 
A) increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. 
B) increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C) decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D) decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices.

Question 6

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A) increases, interest rates increase, and investment decreases. 
B) increases, interest rates decrease, and investment increases. 
C) decreases, interest rates increase, and investment increases. 
D) decreases, interest rates decrease, and investment decreases. 
A) increases, interest rates increase, and investment decreases. 
B) increases, interest rates decrease, and investment increases. 
C) decreases, interest rates increase, and investment increases. 
D) decreases, interest rates decrease, and investment decreases.

Question 7

In the short run, a decrease in the money supply causes interest rates to

Accepted Answer

A) increase, and aggregate demand to shift right. 
B) increase, and aggregate demand to shift left. 
C) decrease, and aggregate demand to shift right. 
D) decrease, and aggregate demand to shift left. 
A) increase, and aggregate demand to shift right. 
B) increase, and aggregate demand to shift left. 
C) decrease, and aggregate demand to shift right. 
D) decrease, and aggregate demand to shift left.

Question 8

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The multiplier for this economy is

Accepted Answer

A) 2.85. 
B) 1.53. 
C) 4.00. 
D) 7.00. 
A) 2.85. 
B) 1.53. 
C) 4.00. 
D) 7.00.

Question 9

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A) decrease the money supply 
B) increase government expenditures 
C) increase taxes 
D) All of the above are correct. 
A) decrease the money supply 
B) increase government expenditures 
C) increase taxes 
D) All of the above are correct.

Question 10

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A) $60 billion, but the effect would be larger if there were an investment accelerator. 
B) $60 billion, but the effect would be smaller if there were an investment accelerator. 
C) $45 billion, but the effect would be larger if there were an investment accelerator. 
D) $45 billion, but the effect would be smaller if there were an investment accelerator. 
A) $60 billion, but the effect would be larger if there were an investment accelerator. 
B) $60 billion, but the effect would be smaller if there were an investment accelerator. 
C) $45 billion, but the effect would be larger if there were an investment accelerator. 
D) $45 billion, but the effect would be smaller if there were an investment accelerator.

Question 11

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in aggregate demand?

Accepted Answer

A) Raise both taxes and expenditures by $5.56 billion dollars. 
B) Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars. 
C) Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars. 
D) Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars. 
A) Raise both taxes and expenditures by $5.56 billion dollars. 
B) Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars. 
C) Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars. 
D) Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.

Question 12

Monetary policy and fiscal policy influence

Accepted Answer

A) output and prices in the short run and the long run. 
B) output and prices in the short run only. 
C) output in the short run and the long run. 
D) output in the short run only. 
A) output and prices in the short run and the long run. 
B) output and prices in the short run only. 
C) output in the short run and the long run. 
D) output in the short run only.

Question 13

Figure 34-1  
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A) If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B) If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C) Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D) None of the above is correct. 
A) If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B) If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C) Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D) None of the above is correct.

Question 14

Other things the same, automatic stabilizers tend to

Accepted Answer

A) raise expenditures during expansions and recessions. 
B) lower expenditures during expansions and recessions. 
C) raise expenditures during recessions and lower expenditures during expansions. 
D) raise expenditures during expansions and lower expenditures during recessions. 
A) raise expenditures during expansions and recessions. 
B) lower expenditures during expansions and recessions. 
C) raise expenditures during recessions and lower expenditures during expansions. 
D) raise expenditures during expansions and lower expenditures during recessions.

Question 15

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate

Question 16

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Accepted Answer

A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply. 
A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply.

Question 17

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 18

When taxes increase, interest rates​

Accepted Answer

A) ​increase, making the change in aggregate demand smaller. 
B) ​increase, making the change in aggregate demand larger. 
C) ​decrease, making the change in aggregate demand smaller. 
D) ​decrease, making the change in aggregate demand larger. 
A) ​increase, making the change in aggregate demand smaller. 
B) ​increase, making the change in aggregate demand larger. 
C) ​decrease, making the change in aggregate demand smaller. 
D) ​decrease, making the change in aggregate demand larger.

Question 19

Figure 34-13  
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13  
-Refer to Figure 34-13....

Question 20

According to liquidity preference theory, the money-supply curve would shift if the Fed

Accepted Answer

A) engaged in open-market operations. 
B) increased money demand. 
C) increased the real income. 
D) did any of the above. 
A) engaged in open-market operations. 
B) increased money demand. 
C) increased the real income. 
D) did any of the above.

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Changes in the interest rate help explain

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

To decrease the interest rate the Federal Reserve could

The short-run effects on the interest rate are

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

The most important reason for the slope of the aggregate-demand curve is that as the price level

In the short run, a decrease in the money supply causes interest rates to

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The multiplier for this economy is

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Monetary policy and fiscal policy influence

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Other things the same, automatic stabilizers tend to

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

When taxes increase, interest rates​

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

According to liquidity preference theory, the money-supply curve would shift if the Fed

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

When taxes increase, interest rates

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.