Question 1

Why are monetary authorities concerned about stock market booms?

Accepted Answer

A) because the booms decrease consumption spending 
B) because the booms decrease investment spending 
C) because the booms increase consumption spending 
D) because the booms increase government deficit 
A) because the booms decrease consumption spending 
B) because the booms decrease investment spending 
C) because the booms increase consumption spending 
D) because the booms increase government deficit

Question 2

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

Accepted Answer

A) It causes interest rates to increase and aggregate demand to shift right. 
B) It causes interest rates to increase and aggregate demand to shift left. 
C) It causes interest rates to decrease and aggregate demand to shift right. 
D) It causes interest rates to decrease and aggregate demand to shift left. 
A) It causes interest rates to increase and aggregate demand to shift right. 
B) It causes interest rates to increase and aggregate demand to shift left. 
C) It causes interest rates to decrease and aggregate demand to shift right. 
D) It causes interest rates to decrease and aggregate demand to shift left.

Question 3

In liquidity-preference theory,an increase in the interest rate decreases the quantity of money demanded,but does not shift the money-demand curve.

Accepted Answer

A) True 
 B)False

Question 4

Canada is a small open economy with a flexible exchange rate.Which of the following effects will a contractionary fiscal policy have?

Accepted Answer

A) It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase. 
B) It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease. 
C) It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease. 
D) It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase. 
A) It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase. 
B) It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease. 
C) It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease. 
D) It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase.

Question 5

Which of the following statements do opponents of active stabilization policy believe?

Accepted Answer

A) Fiscal policy cannot stabilize the economy even in theory. 
B) Fiscal policy has no impact in the long run. 
C) The effects of monetary policy may be long lived. 
D) The Bank of Canada should try to fine-tune the economy. 
A) Fiscal policy cannot stabilize the economy even in theory. 
B) Fiscal policy has no impact in the long run. 
C) The effects of monetary policy may be long lived. 
D) The Bank of Canada should try to fine-tune the economy.

Question 6

Which of the following properly describes the interest-rate effect?

Accepted Answer

A) A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded. 
B) A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded. 
C) A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded. 
D) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded. 
A) A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded. 
B) A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded. 
C) A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded. 
D) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded.

Question 7

If inflation is zero,then the nominal and real interest rates are the same.

Accepted Answer

A) True 
 B)False

Question 8

If the MPC is 0,what is the multiplier?

Accepted Answer

A) 0 
B) 1 
C) 10 
D) 100 
A) 0 
B) 1 
C) 10 
D) 100

Question 9

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Bank of Canada conducts monetary pol

Question 10

In a small open economy with perfect capital mobility,if the exchange rate is flexible,which of the following would be the effect of an expansionary monetary policy?

Accepted Answer

A) It would cause the domestic interest rate to increase permanently. 
B) It would cause the domestic interest rate to decrease permanently. 
C) It would cause the domestic interest rate to increase temporarily. 
D) It would cause the domestic interest rate to decrease temporarily. 
A) It would cause the domestic interest rate to increase permanently. 
B) It would cause the domestic interest rate to decrease permanently. 
C) It would cause the domestic interest rate to increase temporarily. 
D) It would cause the domestic interest rate to decrease temporarily.

Question 11

Figure 15-2
  
-Refer to the Figure 15-2.In a closed economy,which of the following could have caused the economy to move from a to b?

Accepted Answer

A) a wave of optimism 
B) a decrease in price 
C) either fiscal or monetary contraction 
D) an increase in the price of oil 
A) a wave of optimism 
B) a decrease in price 
C) either fiscal or monetary contraction 
D) an increase in the price of oil

Question 12

Suppose that there are no crowding-out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate-demand curve right by $10 billion?

Accepted Answer

An MPC of 0.9 means the multiplier = 1/(

Question 13

If there is excess money demand,what will people do and what happens to the interest rate?

Accepted Answer

A) People will deposit more into interest-bearing accounts, and the interest rate will fall. 
B) People will deposit more into interest-bearing accounts, and the interest rate will rise. 
C) People will withdraw money from interest-bearing accounts, and the interest rate will fall. 
D) People will withdraw money from interest-bearing accounts, and the interest rate will rise. 
A) People will deposit more into interest-bearing accounts, and the interest rate will fall. 
B) People will deposit more into interest-bearing accounts, and the interest rate will rise. 
C) People will withdraw money from interest-bearing accounts, and the interest rate will fall. 
D) People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 14

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply 
A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply

Question 15

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $200 billion will eventually shift the AD curve to the right by how much?

Accepted Answer

A) $80 billion 
B) $133.33 billion 
C) $150 billion 
D) $800 billion 
A) $80 billion 
B) $133.33 billion 
C) $150 billion 
D) $800 billion

Question 16

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

Accepted Answer

A) The interest rate and the quantity demanded rise. 
B) The interest rate rises and the quantity demanded falls. 
C) The interest rate falls and the quantity demanded rises. 
D) The interest rate and the quantity demanded fall. 
A) The interest rate and the quantity demanded rise. 
B) The interest rate rises and the quantity demanded falls. 
C) The interest rate falls and the quantity demanded rises. 
D) The interest rate and the quantity demanded fall.

Question 17

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

Accepted Answer

A) The interest rate increases, and output demanded increases. 
B) The interest rate increases, and output demanded decreases. 
C) The interest rate decreases, and output demanded increases. 
D) The interest rate decreases, and output demanded decreases. 
A) The interest rate increases, and output demanded increases. 
B) The interest rate increases, and output demanded decreases. 
C) The interest rate decreases, and output demanded increases. 
D) The interest rate decreases, and output demanded decreases.

Question 18

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $200 billion increase in government expenditures shift aggregate demand?

Accepted Answer

A) It will shift aggregate demand right by more than $200 billion. 
B) It will shift aggregate demand right by $200 billion. 
C) It will shift aggregate demand right by less than $200 billion. 
D) It will shift aggregate demand left by more than $200 billion. 
A) It will shift aggregate demand right by more than $200 billion. 
B) It will shift aggregate demand right by $200 billion. 
C) It will shift aggregate demand right by less than $200 billion. 
D) It will shift aggregate demand left by more than $200 billion.

Question 19

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x² + x³+… Show that this sum is equal to 1/(1 - x).

Accepted Answer

Let the sum be m = 1 + x + x² + x³+… We

Question 20

Supply-side economists believe that a reduction in the tax rate will do which of the following?

Accepted Answer

A) decrease government tax revenue 
B) shift the aggregate-supply curve to the right 
C) provide no incentive for people to work more 
D) decrease consumption 
A) decrease government tax revenue 
B) shift the aggregate-supply curve to the right 
C) provide no incentive for people to work more 
D) decrease consumption

Why are monetary authorities concerned about stock market booms?

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

In liquidity-preference theory,an increase in the interest rate decreases the quantity of money demanded,but does not shift the money-demand curve.

Canada is a small open economy with a flexible exchange rate.Which of the following effects will a contractionary fiscal policy have?

Which of the following statements do opponents of active stabilization policy believe?

Which of the following properly describes the interest-rate effect?

If inflation is zero,then the nominal and real interest rates are the same.

If the MPC is 0,what is the multiplier?

What is the difference between monetary policy and fiscal policy?

In a small open economy with perfect capital mobility,if the exchange rate is flexible,which of the following would be the effect of an expansionary monetary policy?

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,which of the following could have caused the economy to move from a to b?

Suppose that there are no crowding-out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate-demand curve right by $10 billion?

If there is excess money demand,what will people do and what happens to the interest rate?

Which of the following shifts aggregate demand to the right?

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $200 billion will eventually shift the AD curve to the right by how much?

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $200 billion increase in government expenditures shift aggregate demand?

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x² + x³+… Show that this sum is equal to 1/(1 - x).

Supply-side economists believe that a reduction in the tax rate will do which of the following?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff between Inflation and Unemployment

Five Debates over Macroeconomic Policy

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Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Why are monetary authorities concerned about stock market booms?

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

In liquidity-preference theory,an increase in the interest rate decreases the quantity of money demanded,but does not shift the money-demand curve.

Canada is a small open economy with a flexible exchange rate.Which of the following effects will a contractionary fiscal policy have?

Which of the following statements do opponents of active stabilization policy believe?

Which of the following properly describes the interest-rate effect?

If inflation is zero,then the nominal and real interest rates are the same.

If the MPC is 0,what is the multiplier?

What is the difference between monetary policy and fiscal policy?

In a small open economy with perfect capital mobility,if the exchange rate is flexible,which of the following would be the effect of an expansionary monetary policy?

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,which of the following could have caused the economy to move from a to b?

Suppose that there are no crowding-out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate-demand curve right by $10 billion?

If there is excess money demand,what will people do and what happens to the interest rate?

Which of the following shifts aggregate demand to the right?

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $200 billion will eventually shift the AD curve to the right by how much?

According to liquidity-preference theory,if the price level increases,how do the equilibrium interest rate and the aggregate quantity of goods change?

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $200 billion increase in government expenditures shift aggregate demand?

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x² + x³+… Show that this sum is equal to 1/(1 - x).

Supply-side economists believe that a reduction in the tax rate will do which of the following?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff between Inflation and Unemployment

Five Debates over Macroeconomic Policy

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