Question 1

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

Accepted Answer

A) True 
 B)False

Question 2

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 3

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

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 4

Which of the following statements is correct?

Accepted Answer

A) Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B) Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C) Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D) Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium. 
A) Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B) Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C) Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D) Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.

Question 5

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

A) the multiplier effect 
B) the crowding-out effect 
C) the accelerator effect 
D) All of the above are correct. 
A) the multiplier effect 
B) the crowding-out effect 
C) the accelerator effect 
D) All of the above are correct.

Question 6

If the Federal Reserve's goal is to stabilize aggregate demand, then it will _____ the money supply in response to a stock market boom. This causes interest rates to _____.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 7

According to classical macroeconomic theory,

Accepted Answer

A) the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B) for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. 
C) output is determined by the supplies of capital and labor and the available production technology. 
D) All of the above are correct. 
A) the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B) for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. 
C) output is determined by the supplies of capital and labor and the available production technology. 
D) All of the above are correct.

Question 8

People choose to hold a smaller quantity of money if​

Accepted Answer

A) ​the interest rate increases, which causes the opportunity cost of holding money to increase. 
B) ​the interest rate increases, which causes the opportunity cost of holding money to decrease. 
C) ​the interest rate decreases, which causes the opportunity cost of holding money to increase. 
D) ​the interest rate decreases, which causes the opportunity cost of holding money to decrease. 
A) ​the interest rate increases, which causes the opportunity cost of holding money to increase. 
B) ​the interest rate increases, which causes the opportunity cost of holding money to decrease. 
C) ​the interest rate decreases, which causes the opportunity cost of holding money to increase. 
D) ​the interest rate decreases, which causes the opportunity cost of holding money to decrease.

Question 9

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A) proposals to change monetary policy must go through both the House and Senate before being sent to the president. 
B) monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. 
C) changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. 
D) changes in interest rates primarily influence investment spending, and firms make investment plans far in advance. 
A) proposals to change monetary policy must go through both the House and Senate before being sent to the president. 
B) monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. 
C) changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. 
D) changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.

Question 10

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Accepted Answer

A) increases by more than the change in the nominal interest rate. 
B) increases by the change in the nominal interest rate. 
C) decreases by the change in the nominal interest rate. 
D) decreases by more than the change in the nominal interest rate. 
A) increases by more than the change in the nominal interest rate. 
B) increases by the change in the nominal interest rate. 
C) decreases by the change in the nominal interest rate. 
D) decreases by more than the change in the nominal interest rate.

Question 11

An increase in taxes shifts the aggregate _____ curve to the _____.

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 12

Automatic stabilizers

Accepted Answer

A) increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D) All of the above are correct. 
A) increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D) All of the above are correct.

Question 13

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A) left by $60 billion. 
B) left by $36 billion. 
C) right by $68 billion. 
D) right by $36 billion. 
A) left by $60 billion. 
B) left by $36 billion. 
C) right by $68 billion. 
D) right by $36 billion.

Question 14

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A) buy bonds to lower the money supply. 
B) buy bonds to raise the money supply. 
C) sell bonds to lower the money supply. 
D) sell bonds to raise the money supply. 
A) buy bonds to lower the money supply. 
B) buy bonds to raise the money supply. 
C) sell bonds to lower the money supply. 
D) sell bonds to raise the money supply.

Question 15

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following events would shift money demand to the left?

Accepted Answer

A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate, but not an increase in the price level 
C) an increase in the price level, but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level 
A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate, but not an increase in the price level 
C) an increase in the price level, but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level

Question 17

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Accepted Answer

A) True 
 B)False

Question 18

Liquidity refers to

Accepted Answer

A) the relation between the price and interest rate of an asset. 
B) the risk of an asset relative to its selling price. 
C) the ease with which an asset is converted into a medium of exchange. 
D) the sensitivity of investment spending to changes in the interest rate. 
A) the relation between the price and interest rate of an asset. 
B) the risk of an asset relative to its selling price. 
C) the ease with which an asset is converted into a medium of exchange. 
D) the sensitivity of investment spending to changes in the interest rate.

Question 19

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A) Increases in the money supply shift aggregate demand to the right. 
B) In the long run, increases in the money supply increase prices, but not output. 
C) Recessions are associated with decreases in consumption, investment, and employment. 
D) Government should use fiscal policy to try to stabilize the economy. 
A) Increases in the money supply shift aggregate demand to the right. 
B) In the long run, increases in the money supply increase prices, but not output. 
C) Recessions are associated with decreases in consumption, investment, and employment. 
D) Government should use fiscal policy to try to stabilize the economy.

Question 20

The interest rate falls if

Accepted Answer

A) the price level falls or the money supply falls. 
B) the price level falls or the money supply rises. 
C) the price level rises or the money supply falls. 
D) the price level rises or the money supply rises. 
A) the price level falls or the money supply falls. 
B) the price level falls or the money supply rises. 
C) the price level rises or the money supply falls. 
D) the price level rises or the money supply rises.

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

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

Which of the following statements is correct?

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

If the Federal Reserve's goal is to stabilize aggregate demand, then it will _____ the money supply in response to a stock market boom. This causes interest rates to _____.

According to classical macroeconomic theory,

People choose to hold a smaller quantity of money if​

Monetary policy affects the economy with a long lag, in part because

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

An increase in taxes shifts the aggregate _____ curve to the _____.

Automatic stabilizers

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

If the Federal Reserve decided to raise interest rates, it could

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Which of the following events would shift money demand to the left?

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Liquidity refers to

Which of the following statements generates the greatest amount of disagreement among economists?

The interest rate falls if

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

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

If the Federal Reserve's goal is to stabilize aggregate demand, then it will _ the money supply in response to a stock market boom. This causes interest rates to _.

People choose to hold a smaller quantity of money if

An increase in taxes shifts the aggregate _ curve to the _.

According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.