Question 1

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

fiscal policy

Question 2

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

animal spirits

Question 3

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False  False

Question 4

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would

Accepted Answer

A) always shift aggregate demand right by a larger amount than the increase in government expenditures. 
B) always shift aggregate demand right by the same amount as the increase in government expenditures. 
C) always shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D) shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures. 
A) always shift aggregate demand right by a larger amount than the increase in government expenditures. 
B) always shift aggregate demand right by the same amount as the increase in government expenditures. 
C) always shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D) shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures.

Question 7

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 8

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 9

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 10

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r

Question 11

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu

Question 12

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A) increase the money supply, which will reduce interest rates. 
B) decrease the money supply, which will reduce interest rates. 
C) increase the money supply, which will increase interest rates. 
D) decrease the money supply, which will increase interest rates. 
A) increase the money supply, which will reduce interest rates. 
B) decrease the money supply, which will reduce interest rates. 
C) increase the money supply, which will increase interest rates. 
D) decrease the money supply, which will increase interest rates.

Question 13

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 14

If taxes

Accepted Answer

A) decrease, then consumption decreases, and aggregate demand shifts rightward. 
B) decrease, then consumption increases, and aggregate demand shifts leftward. 
C) increase, then consumption decreases, and aggregate demand shifts leftward. 
D) increase, then consumption increases, and aggregate demand shifts rightward. 
A) decrease, then consumption decreases, and aggregate demand shifts rightward. 
B) decrease, then consumption increases, and aggregate demand shifts leftward. 
C) increase, then consumption decreases, and aggregate demand shifts leftward. 
D) increase, then consumption increases, and aggregate demand shifts rightward.

Question 15

If the Fed increases the money supply,

Accepted Answer

A) the interest rate increases, which tends to raise stock prices. 
B) the interest rate increases, which tends to reduce stock prices. 
C) the interest rate decreases, which tends to raise stock prices. 
D) the interest rate decreases, which tends to reduce stock prices. 
A) the interest rate increases, which tends to raise stock prices. 
B) the interest rate increases, which tends to reduce stock prices. 
C) the interest rate decreases, which tends to raise stock prices. 
D) the interest rate decreases, which tends to reduce stock prices.

Question 16

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 17

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 18

According to liquidity preference theory, the money-supply curve is

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) vertical. 
D) horizontal. 
A) upward sloping. 
B) downward sloping. 
C) vertical. 
D) horizontal.

Question 19

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

Accepted Answer

A) if the money demand curve shifted right. 
B) if the Federal Reserve chose to increase the money supply. 
C) if the interest rate increased. 
D) if the price level increased. 
A) if the money demand curve shifted right. 
B) if the Federal Reserve chose to increase the money supply. 
C) if the interest rate increased. 
D) if the price level increased.

Question 20

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

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

The government's choices regarding the overall level of government purchases and taxes is known as _____.

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Unemployment insurance and welfare programs work as automatic stabilizers.

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

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would

The multiplier is computed as MPC / (1 - MPC).

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

The ease with which an asset can be converted into the medium of exchange is known as _____.

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

What is the value of the multiplier if the marginal propensity to consume is 0.5?

If taxes

If the Fed increases the money supply,

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

How does a reduction in the money supply by the Fed make owning stocks less attractive?

According to liquidity preference theory, the money-supply curve is

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

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?

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 Nations 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 _.

The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.