Question 1

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following reasons for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

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 3

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

Accepted Answer

A) The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B) The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C) The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D) The opportunity cost of holding money decreases, so the quantity of money demanded decreases. 
A) The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B) The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C) The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D) The opportunity cost of holding money decreases, so the quantity of money demanded decreases.

Question 4

If the MPC = 5/6,what is the government purchases multiplier?

Accepted Answer

A) 1/6 
B) 5/6 
C) 6/5 
D) 6 
A) 1/6 
B) 5/6 
C) 6/5 
D) 6

Question 5

In a small open economy with a flexible exchange rate,an expansionary fiscal policy will cause which of the following to happen?

Accepted Answer

A) It will cause the dollar to depreciate. 
B) It will cause the dollar to appreciate. 
C) It will cause net exports to increase. 
D) It will cause a lasting effect on aggregate demand. 
A) It will cause the dollar to depreciate. 
B) It will cause the dollar to appreciate. 
C) It will cause net exports to increase. 
D) It will cause a lasting effect on aggregate demand.

Question 6

If a central bank targets the interest rate,what does this imply?

Accepted Answer

A) The central bank can then set the money supply at whatever value it wants. 
B) The central bank must increase the money supply if the interest rate is above its target. 
C) The central bank must decrease the money supply if the interest rate is above its target. 
D) The central bank must not change the money supply. 
A) The central bank can then set the money supply at whatever value it wants. 
B) The central bank must increase the money supply if the interest rate is above its target. 
C) The central bank must decrease the money supply if the interest rate is above its target. 
D) The central bank must not change the money supply.

Question 7

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,which of the following is most likely to happen?

Accepted Answer

A) crowding-out effects 
B) no crowding-out effects 
C) no increase in the demand for goods and services 
D) a decrease in aggregate demand 
A) crowding-out effects 
B) no crowding-out effects 
C) no increase in the demand for goods and services 
D) a decrease in aggregate demand

Question 8

Which of the following do critics of stabilization policy argue?

Accepted Answer

A) There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B) The impact of policy may not last enough for the problem it was designed to offset to be solved. 
C) Policy cannot cause economic fluctuations. 
D) Policy can be a source of, instead of a cure for, recessions. 
A) There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B) The impact of policy may not last enough for the problem it was designed to offset to be solved. 
C) Policy cannot cause economic fluctuations. 
D) Policy can be a source of, instead of a cure for, recessions.

Question 9

If the interest rate is below a central bank's target,what should the central bank do?

Accepted Answer

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

Question 10

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

Accepted Answer

A) relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth 
B) relatively important in Canada because consumption spending is a large part of GDP 
C) relatively unimportant in Canada because money holdings are a small part of consumer wealth 
D) relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates 
A) relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth 
B) relatively important in Canada because consumption spending is a large part of GDP 
C) relatively unimportant in Canada because money holdings are a small part of consumer wealth 
D) relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates

Question 11

During recessions,how do automatic stabilizers change government deficit and taxes?

Accepted Answer

A) Both deficit and taxes increase. 
B) Both deficit and taxes decrease. 
C) Deficit increases and taxes decrease. 
D) Deficit decreases and taxes increase. 
A) Both deficit and taxes increase. 
B) Both deficit and taxes decrease. 
C) Deficit increases and taxes decrease. 
D) Deficit decreases and taxes increase.

Question 12

According to the crowding-out effect,how do the interest rate and investment spending change when government spending increases?

Accepted Answer

A) The interest rate and investment spending both increase. 
B) The interest rate increases and investment spending decreases. 
C) The interest rate decreases and investment spending increases. 
D) The interest rate and investment spending both decrease. 
A) The interest rate and investment spending both increase. 
B) The interest rate increases and investment spending decreases. 
C) The interest rate decreases and investment spending increases. 
D) The interest rate and investment spending both decrease.

Question 13

Which of the following is NOT a reason the aggregate-demand curve slopes downward?

Accepted Answer

A) As the price level increases, real wages decline. 
B) As the price level increases, real wealth declines. 
C) As the price level increases, the interest rate increases. 
D) As the price level increases, the exchange rate increases. 
A) As the price level increases, real wages decline. 
B) As the price level increases, real wealth declines. 
C) As the price level increases, the interest rate increases. 
D) As the price level increases, the exchange rate increases.

Question 14

Which of the following policy alternatives would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

Accepted Answer

A) increasing taxes 
B) increasing the money supply 
C) increasing government expenditures 
D) increasing the government deficit 
A) increasing taxes 
B) increasing the money supply 
C) increasing government expenditures 
D) increasing the government deficit

Question 15

When the Bank of Canada decreases the money supply,what do we expect to happen to interest rates and stock prices?

Accepted Answer

A) Interest rates and stock prices both rise. 
B) Interest rates and stock prices both fall. 
C) Interest rates rise and stock prices fall. 
D) Interest rates fall and stock prices rise. 
A) Interest rates and stock prices both rise. 
B) Interest rates and stock prices both fall. 
C) Interest rates rise and stock prices fall. 
D) Interest rates fall and stock prices rise.

Question 16

A decrease in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

A) aggregate demand right 
B) aggregate demand left 
C) aggregate supply right 
D) aggregate supply left 
A) aggregate demand right 
B) aggregate demand left 
C) aggregate supply right 
D) aggregate supply left

Question 17

What did Keynes use the term "animal spirits" to refer to?

Accepted Answer

A) debates by politicians concerning fiscal policy 
B) arbitrary changes in attitudes of households and firms 
C) mean-spirited economists who believed in the classical dichotomy 
D) firms' relentless efforts to maximize profits 
A) debates by politicians concerning fiscal policy 
B) arbitrary changes in attitudes of households and firms 
C) mean-spirited economists who believed in the classical dichotomy 
D) firms' relentless efforts to maximize profits

Question 18

Which of the following best defines automatic stabilizers?

Accepted Answer

A) changes in taxes or government spending that increase the lags caused by fiscal policy 
B) changes in taxes or government spending that shift aggregate demand without requiring active policies 
C) changes in taxes or government spending that policymakers quickly agree to 
D) any changes in taxes or government policies 
A) changes in taxes or government spending that increase the lags caused by fiscal policy 
B) changes in taxes or government spending that shift aggregate demand without requiring active policies 
C) changes in taxes or government spending that policymakers quickly agree to 
D) any changes in taxes or government policies

Question 19

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 20

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

Accepted Answer

Automatic stabilizers are countercyclica

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

Which of the following reasons for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

If the MPC = 5/6,what is the government purchases multiplier?

In a small open economy with a flexible exchange rate,an expansionary fiscal policy will cause which of the following to happen?

If a central bank targets the interest rate,what does this imply?

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,which of the following is most likely to happen?

Which of the following do critics of stabilization policy argue?

If the interest rate is below a central bank's target,what should the central bank do?

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

During recessions,how do automatic stabilizers change government deficit and taxes?

According to the crowding-out effect,how do the interest rate and investment spending change when government spending increases?

Which of the following is NOT a reason the aggregate-demand curve slopes downward?

Which of the following policy alternatives would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

When the Bank of Canada decreases the money supply,what do we expect to happen to interest rates and stock prices?

A decrease in government spending initially and primarily shifts which curve in what direction?

What did Keynes use the term "animal spirits" to refer to?

Which of the following best defines automatic stabilizers?

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

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

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

Which of the following reasons for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

If the MPC = 5/6,what is the government purchases multiplier?

In a small open economy with a flexible exchange rate,an expansionary fiscal policy will cause which of the following to happen?

If a central bank targets the interest rate,what does this imply?

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,which of the following is most likely to happen?

Which of the following do critics of stabilization policy argue?

If the interest rate is below a central bank's target,what should the central bank do?

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

During recessions,how do automatic stabilizers change government deficit and taxes?

According to the crowding-out effect,how do the interest rate and investment spending change when government spending increases?

Which of the following is NOT a reason the aggregate-demand curve slopes downward?

Which of the following policy alternatives would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

When the Bank of Canada decreases the money supply,what do we expect to happen to interest rates and stock prices?

A decrease in government spending initially and primarily shifts which curve in what direction?

What did Keynes use the term "animal spirits" to refer to?

Which of the following best defines automatic stabilizers?

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

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

Filters