Question 1

When taxes increase, interest rates

Accepted Answer

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

Question 2

Fiscal policy affects the economy

Accepted Answer

A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor the long run. 
A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor the long run.

Question 3

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A) The wealth effect 
B) The interest-rate effect 
C) The exchange-rate effect 
D) The real-wage effect 
A) The wealth effect 
B) The interest-rate effect 
C) The exchange-rate effect 
D) The real-wage effect

Question 4

Figure 34-5   ​
​
​
-Refer to Figure 34-5. An increase in taxes will

Accepted Answer

A) shift aggregate demand from AD1 to AD3. 
B) shift aggregate demand from AD1 to AD2. 
C) cause movement from point C to point D along AD1. 
D) have no effect on aggregate demand. 
A) shift aggregate demand from AD1 to AD3. 
B) shift aggregate demand from AD1 to AD2. 
C) cause movement from point C to point D along AD1. 
D) have no effect on aggregate demand.

Question 5

Shifts in aggregate demand affect the price level in

Accepted Answer

A) the short run but not in the long run. 
B) the long run but not in the short run. 
C) both the short and long run. 
D) neither the short nor long run. 
A) the short run but not in the long run. 
B) the long run but not in the short run. 
C) both the short and long run. 
D) neither the short nor long run.

Question 6

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases,

Question 7

Figure 34-4   ​
​
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B) people will respond by selling interest-bearing bonds. 
C) bond issuers and banks will respond by lowering the interest rates they offer. 
D) in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B) people will respond by selling interest-bearing bonds. 
C) bond issuers and banks will respond by lowering the interest rates they offer. 
D) in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.

Question 8

If the interest rate is below the Fed's target, the Fed should

Accepted Answer

A) sell bonds to decrease the money supply. 
B) sell bonds to increase the money supply. 
C) buy bonds to decrease the money supply. 
D) buy bonds to increase the money supply. 
A) sell bonds to decrease the money supply. 
B) sell bonds to increase the money supply. 
C) buy bonds to decrease the money supply. 
D) buy bonds to increase the money supply.

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) Increase interest rates 
A) Decrease the money supply 
B) Increase government expenditures 
C) Increase taxes 
D) Increase interest rates

Question 10

A goal of monetary policy and fiscal policy is to

Accepted Answer

A) offset the shifts in aggregate demand and thereby eliminate unemployment. 
B) offset shifts in aggregate demand and thereby stabilize the economy. 
C) enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D) enhance the shifts in aggregate demand and thereby increase economic growth. 
A) offset the shifts in aggregate demand and thereby eliminate unemployment. 
B) offset shifts in aggregate demand and thereby stabilize the economy. 
C) enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D) enhance the shifts in aggregate demand and thereby increase economic growth.

Question 11

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 12

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m

Question 13

The Federal Open Market Committee is ​

Accepted Answer

A) ​the group at the Federal Reserve that sets monetary policy. 
B) ​in charge of tax collection. 
C) ​the group that sets the amount of government spending. 
D) ​the group that reviews income assistance programs. 
A) ​the group at the Federal Reserve that sets monetary policy. 
B) ​in charge of tax collection. 
C) ​the group that sets the amount of government spending. 
D) ​the group that reviews income assistance programs.

Question 14

Which of the following is an example of crowding out?

Accepted Answer

A) An increase in government spending increases interest rates, causing investment to fall. 
B) A decrease in private savings increases interest rates, causing investment to fall. 
C) A decrease in the money supply increases interest rates, causing investment to fall. 
D) An increase in taxes increases interest rates, causing investment to fall. 
A) An increase in government spending increases interest rates, causing investment to fall. 
B) A decrease in private savings increases interest rates, causing investment to fall. 
C) A decrease in the money supply increases interest rates, causing investment to fall. 
D) An increase in taxes increases interest rates, causing investment to fall.

Question 15

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a _____ effect...

Question 16

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A) has no effect on aggregate demand. 
B) has more of an effect on aggregate demand than if households view it as permanent. 
C) has the same effect as when households view the cut as permanent. 
D) has less of an effect on aggregate demand than if households view it as permanent. 
A) has no effect on aggregate demand. 
B) has more of an effect on aggregate demand than if households view it as permanent. 
C) has the same effect as when households view the cut as permanent. 
D) has less of an effect on aggregate demand than if households view it as permanent.

Question 17

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A) Increase taxes 
B) Increase government expenditures 
C) Increase the money supply 
D) Lower interest rates 
A) Increase taxes 
B) Increase government expenditures 
C) Increase the money supply 
D) Lower interest rates

Question 18

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause a(n) _____ in interest...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Liquidity preference theory is most relevant to the

Accepted Answer

A) short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C) long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
A) short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C) long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

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

When taxes increase, interest rates

Fiscal policy affects the economy

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Figure 34-5 ​ ​ ​ -Refer to Figure 34-5. An increase in taxes will

Shifts in aggregate demand affect the price level in

A decrease in taxes ____ aggregate demand through larger _____ by households.

Figure 34-4 ​ ​ -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

If the interest rate is below the Fed's target, the Fed should

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?

A goal of monetary policy and fiscal policy is to

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

What is the difference between monetary policy and fiscal policy?

The Federal Open Market Committee is ​

Which of the following is an example of crowding out?

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

If households view a tax cut as temporary, then the tax cut

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

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

Liquidity preference theory is most relevant to the

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

Figure 34-5 -Refer to Figure 34-5. An increase in taxes will

A decrease in taxes aggregate demand through larger _ by households.

Figure 34-4 -Refer to Figure 34-4. Suppose the money-demand curve is currently MD₂. If the current interest rate is r₂, then

The Federal Open Market Committee is

Open-market purchases cause a(n) _ in interest rates and a(n) _ in real GDP in the short run.

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