Question 1

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following shifts aggregate demand right?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures

Question 3

How do permanent tax cuts shift the AD curve compared with temporary tax results?

Accepted Answer

A)  Permanent tax cuts shift the AD curve farther to the right than temporary tax cuts do. 
B)  Permanent tax cuts shift the AD curve less to the right than temporary tax cuts do. 
C)  Permanent tax cuts shift the AD curve farther to the left than temporary tax cuts do. 
D)  Permanent tax cuts shift the AD curve less to the left than temporary tax cuts do. 
A)  Permanent tax cuts shift the AD curve farther to the right than temporary tax cuts do. 
B)  Permanent tax cuts shift the AD curve less to the right than temporary tax cuts do. 
C)  Permanent tax cuts shift the AD curve farther to the left than temporary tax cuts do. 
D)  Permanent tax cuts shift the AD curve less to the left than temporary tax cuts do.

Question 4

As the MPC gets close to 1, what does the value of the multiplier approach?

Accepted Answer

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

Question 5

Both the multiplier and the investment accelerator tend to make the aggregate-demand curve shift farther than the increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 6

In a small open economy with a flexible exchange rate, what will an expansionary fiscal policy cause?

Accepted Answer

A)  It will cause the dollar to depreciate. 
B)  It will cause net exports to rise. 
C)  It will cause an additional investment accelerator effect. 
D)  It will cause a reduction in the demand for Canadian-produced goods. 
A)  It will cause the dollar to depreciate. 
B)  It will cause net exports to rise. 
C)  It will cause an additional investment accelerator effect. 
D)  It will cause a reduction in the demand for Canadian-produced goods.

Question 7

Figure 15-2
  
-Refer to the Figure 15-2. In a closed economy, what 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 8

Suppose the closed economy is in long-run equilibrium. Advances in technology shift the long-run aggregate-supply curve $80 billion to the right. Optimistic investors have shifted the aggregate-demand curve $150 billion to the right. In order to stabilize the price level at its original value, the government wants to reduce its spending. If the crowding-out effect is always half of the multiplier effect, and if the MPC equals 0.75, by how much must the government cut its spending?

Accepted Answer

A)  $4 billion 
B)  $40 billion 
C)  $75 billion 
D)  $150 billion 
A)  $4 billion 
B)  $40 billion 
C)  $75 billion 
D)  $150 billion

Question 9

Which of the following best defines the multiplier effect?

Accepted Answer

A)  the multiplied impact on the money supply of a given increase in government purchases 
B)  the multiplied impact on tax revenues of a given increase in government purchases 
C)  the multiplied impact on investment of a given increase in interest rates 
D)  the multiplied impact on aggregate demand of a given increase in government purchases 
A)  the multiplied impact on the money supply of a given increase in government purchases 
B)  the multiplied impact on tax revenues of a given increase in government purchases 
C)  the multiplied impact on investment of a given increase in interest rates 
D)  the multiplied impact on aggregate demand of a given increase in government purchases

Question 10

What does liquidity refer to?

Accepted Answer

A)  the relation between the price and interest rate of an asset 
B)  the risk of an asset relative to its selling price 
C)  the ease with which an asset is converted into a medium of exchange 
D)  the sensitivity of investment spending to changes in the interest rate 
A)  the relation between the price and interest rate of an asset 
B)  the risk of an asset relative to its selling price 
C)  the ease with which an asset is converted into a medium of exchange 
D)  the sensitivity of investment spending to changes in the interest rate

Question 11

Which statement 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 last for several years. 
D)  The Bank of Canada should try to fine-tune the economy with steady growth in the money supply. 
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 last for several years. 
D)  The Bank of Canada should try to fine-tune the economy with steady growth in the money supply.

Question 12

According to liquidity-preference theory, how does a decrease 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 13

If the MPC = 3/4, what is the government purchases multiplier?

Accepted Answer

A)  1/4 
B)  3/4 
C)  4/3 
D)  4 
A)  1/4 
B)  3/4 
C)  4/3 
D)  4

Question 14

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 15

When a central bank sets a target for the interest rate, what does it commit itself to?

Accepted Answer

A)  revealing its target to the public 
B)  adjusting the demand for money in order to make the equilibrium in the money market hit that target 
C)  adjusting the money supply in order to meet the interest-rate target 
D)  having to make open-market sales 
A)  revealing its target to the public 
B)  adjusting the demand for money in order to make the equilibrium in the money market hit that target 
C)  adjusting the money supply in order to meet the interest-rate target 
D)  having to make open-market sales

Question 16

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

Accepted Answer

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

Question 17

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect

Question 18

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

Accepted Answer

A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate 
A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate

Question 19

When Parliament reduces spending in order to balance the budget, what does it need to consider?

Accepted Answer

A)  the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth 
B)  the short-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth 
C)  the long-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth 
D)  the long-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth 
A)  the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth 
B)  the short-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth 
C)  the long-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth 
D)  the long-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth

Question 20

How do open-market purchases affect the price level and real GDP?

Accepted Answer

A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP. 
A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP.

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Which of the following shifts aggregate demand right?

How do permanent tax cuts shift the AD curve compared with temporary tax results?

As the MPC gets close to 1, what does the value of the multiplier approach?

Both the multiplier and the investment accelerator tend to make the aggregate-demand curve shift farther than the increase in government expenditures.

In a small open economy with a flexible exchange rate, what will an expansionary fiscal policy cause?

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

Which of the following best defines the multiplier effect?

What does liquidity refer to?

Which statement do opponents of active stabilization policy believe?

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

If the MPC = 3/4, what is the government purchases multiplier?

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

When a central bank sets a target for the interest rate, what does it commit itself to?

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

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

When Parliament reduces spending in order to balance the budget, what does it need to consider?

How do open-market purchases affect the price level and real GDP?

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

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Which of the following shifts aggregate demand right?

How do permanent tax cuts shift the AD curve compared with temporary tax results?

As the MPC gets close to 1, what does the value of the multiplier approach?

Both the multiplier and the investment accelerator tend to make the aggregate-demand curve shift farther than the increase in government expenditures.

In a small open economy with a flexible exchange rate, what will an expansionary fiscal policy cause?

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

Which of the following best defines the multiplier effect?

What does liquidity refer to?

Which statement do opponents of active stabilization policy believe?

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

If the MPC = 3/4, what is the government purchases multiplier?

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

When a central bank sets a target for the interest rate, what does it commit itself to?

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

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

When Parliament reduces spending in order to balance the budget, what does it need to consider?

How do open-market purchases affect the price level and real GDP?

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