Question 1

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

Accepted Answer

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

Question 2

What is an effect of an increase in government purchases?

Accepted Answer

A)  It decreases interest rates. 
B)  It results in a decrease in the government deficit. 
C)  It crowds out investment spending by business. 
D)  It decreases money demand. 
A)  It decreases interest rates. 
B)  It results in a decrease in the government deficit. 
C)  It crowds out investment spending by business. 
D)  It decreases money demand.

Question 3

What is the main reason the aggregate-demand curve slopes downward?

Accepted Answer

A)  As the price level increases, money demand increases, interest rates increase, and investment decreases. 
B)  As the price level increases, money demand increases, interest rates decrease, and investment increases. 
C)  As the price level decreases, money demand increases, interest rates increase, and investment increases. 
D)  As the price level decreases, money demand increases, interest rates decrease, and investment decreases. 
A)  As the price level increases, money demand increases, interest rates increase, and investment decreases. 
B)  As the price level increases, money demand increases, interest rates decrease, and investment increases. 
C)  As the price level decreases, money demand increases, interest rates increase, and investment increases. 
D)  As the price level decreases, money demand increases, interest rates decrease, and investment decreases.

Question 4

Assume that the MPC is 0.75. What is the multiplier?

Accepted Answer

A)  0.25 
B)  1.33 
C)  4 
D)  7.5 
A)  0.25 
B)  1.33 
C)  4 
D)  7.5

Question 5

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)  It induces firms to invest more. 
B)  It induces households to increase consumption. 
C)  It shifts money demand to the right. 
D)  It leads to the appreciation of the exchange rate. 
A)  It induces firms to invest more. 
B)  It induces households to increase consumption. 
C)  It shifts money demand to the right. 
D)  It leads to the appreciation of the exchange rate.

Question 6

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor

Question 7

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)  People put more money in their savings accounts. 
B)  Foreign citizens decide to buy fewer Canadian bonds. 
C)  Firms decide to purchase new machinery. 
D)  People decide to increase residential investment. 
A)  People put more money in their savings accounts. 
B)  Foreign citizens decide to buy fewer Canadian bonds. 
C)  Firms decide to purchase new machinery. 
D)  People decide to increase residential investment.

Question 8

An increase in the money supply shifts the aggregate-supply curve right.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Figure 15-1
  
-Refer to the Figure 15-1. At an interest rate of 4 percent, how much is the excess money demand or supply?

Accepted Answer

A)  There is an excess money demand equal to the distance between a and b. 
B)  There is an excess money demand equal to the distance between b and c. 
C)  There is an excess money supply equal to the distance between b and a. 
D)  There is an excess money supply equal to the distance between c and b. 
A)  There is an excess money demand equal to the distance between a and b. 
B)  There is an excess money demand equal to the distance between b and c. 
C)  There is an excess money supply equal to the distance between b and a. 
D)  There is an excess money supply equal to the distance between c and b.

Question 11

If there is excess money supply, 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 12

According to liquidity preference theory, when do people demand fewer goods and services?

Accepted Answer

A)  when the price level or interest rate increase 
B)  when the price level or interest rate decrease 
C)  when the price level increases or the interest rate decreases 
D)  when the price level decreases or the interest rate increases 
A)  when the price level or interest rate increase 
B)  when the price level or interest rate decrease 
C)  when the price level increases or the interest rate decreases 
D)  when the price level decreases or the interest rate increases

Question 13

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

Accepted Answer

A)  decreasing taxes 
B)  decreasing the interest rate 
C)  increasing the money supply 
D)  increasing taxes 
A)  decreasing taxes 
B)  decreasing the interest rate 
C)  increasing the money supply 
D)  increasing taxes

Question 14

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 15

Stock prices often rise when the Bank of Canada raises interest rates.

Accepted Answer

A) True 
 B)False

Question 16

The economy is in long-run equilibrium when the government decides to significantly increase spending on transportation infrastructure, which will lower shipping costs for many businesses. What might we expect in the short run and the long run to happen to real GDP and the price level?

Accepted Answer

A)  Real GDP will increase and the price level will fall, but in the long run, there will be no effect. 
B)  Real GDP will increase and the price level will fall, but in the long run, real GDP will increase and the price level might rise, fall, or stay the same. 
C)  Real GDP will increase and the price level might rise, fall, or stay the same, and in the long run, real GDP will increase and the price level might rise, fall, or stay the same. 
D)  Real GDP will increase and the price level might rise, fall, or stay the same, but in the long run, the price level will increase and real GDP might rise, fall or stay the same. 
A)  Real GDP will increase and the price level will fall, but in the long run, there will be no effect. 
B)  Real GDP will increase and the price level will fall, but in the long run, real GDP will increase and the price level might rise, fall, or stay the same. 
C)  Real GDP will increase and the price level might rise, fall, or stay the same, and in the long run, real GDP will increase and the price level might rise, fall, or stay the same. 
D)  Real GDP will increase and the price level might rise, fall, or stay the same, but in the long run, the price level will increase and real GDP might rise, fall or stay the same.

Question 17

Let us derive an aggregate-demand curve starting from some money demand and money supply equations. Assume the money-demand curve is MD=150 - 15r + Y, the price level depends on r according to the equation P = 100 - 10r, and the money supply is MS = 100. Find a relationship between the price level P and output Y and show that the relation that you have found is an aggregate demand function.

Accepted Answer

From the money market equilibrium condit

Question 18

An increase in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

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

Question 19

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 20

If the interest rate is above 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

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

What is an effect of an increase in government purchases?

What is the main reason the aggregate-demand curve slopes downward?

Assume that the MPC is 0.75. What is the multiplier?

Which of the following is an effect of an increase in the interest rate?

Explain how unemployment insurance acts as an automatic stabilizer.

Which of the following is an effect of an increase in the interest rate?

An increase in the money supply shifts the aggregate-supply curve right.

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

Figure 15-1 -Refer to the Figure 15-1. At an interest rate of 4 percent, how much is the excess money demand or supply?

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

According to liquidity preference theory, when do people demand fewer goods and services?

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

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

Stock prices often rise when the Bank of Canada raises interest rates.

The economy is in long-run equilibrium when the government decides to significantly increase spending on transportation infrastructure, which will lower shipping costs for many businesses. What might we expect in the short run and the long run to happen to real GDP and the price level?

An increase in government spending initially and primarily shifts which curve in what direction?

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

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

What is an effect of an increase in government purchases?

What is the main reason the aggregate-demand curve slopes downward?

Assume that the MPC is 0.75. What is the multiplier?

Which of the following is an effect of an increase in the interest rate?

Explain how unemployment insurance acts as an automatic stabilizer.

Which of the following is an effect of an increase in the interest rate?

An increase in the money supply shifts the aggregate-supply curve right.

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

Figure 15-1 -Refer to the Figure 15-1. At an interest rate of 4 percent, how much is the excess money demand or supply?

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

According to liquidity preference theory, when do people demand fewer goods and services?

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

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

Stock prices often rise when the Bank of Canada raises interest rates.

The economy is in long-run equilibrium when the government decides to significantly increase spending on transportation infrastructure, which will lower shipping costs for many businesses. What might we expect in the short run and the long run to happen to real GDP and the price level?

An increase in government spending initially and primarily shifts which curve in what direction?

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

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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