Question 1

According to liquidity preference theory,if there were a shortage of money,then

Accepted Answer

A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. D

Question 2

According to the theory of liquidity preference,a decrease in the price level causes the

Accepted Answer

A) interest rate and investment to rise. 
B) interest rate and investment to fall. 
C) interest rate to rise and investment to fall. 
D) interest rate to fall and investment to rise. 
A) interest rate and investment to rise. 
B) interest rate and investment to fall. 
C) interest rate to rise and investment to fall. 
D) interest rate to fall and investment to rise. D

Question 3

Which of the following is not an automatic stabilizer?

Accepted Answer

A) the minimum wage 
B) the unemployment compensation system 
C) the federal income tax 
D) the welfare system 
A) the minimum wage 
B) the unemployment compensation system 
C) the federal income tax 
D) the welfare system A

Question 4

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1

Question 5

If there is crowding out,which of the following might decrease as government expenditures increased?

Accepted Answer

A) real GDP 
B) the demand for money curve 
C) interest rates 
D) demand for capital goods 
A) real GDP 
B) the demand for money curve 
C) interest rates 
D) demand for capital goods

Question 6

Suppose the MPC is .60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion how far does aggregate demand shift? If the government decreases taxes by $200 billion how does aggregate demand shift?

Accepted Answer

A) $300 billion and $180 billion 
B) $300 billion and $300 billion 
C) $500 billion and $300 billion 
D) $500 billion and $500 billion 
A) $300 billion and $180 billion 
B) $300 billion and $300 billion 
C) $500 billion and $300 billion 
D) $500 billion and $500 billion

Question 7

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D) All of the above are correct. 
A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D) All of the above are correct.

Question 8

If the marginal propensity to consume is 2/3,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A) $30 billion, but the effect would be larger if there were an investment accelerator. 
B) $30 billion, but the effect would be smaller if there were an investment accelerator. 
C) $60 billion, but the effect would be larger if there were an investment accelerator. 
D) $60 billion, but the effect would be smaller if there were an investment accelerator. 
A) $30 billion, but the effect would be larger if there were an investment accelerator. 
B) $30 billion, but the effect would be smaller if there were an investment accelerator. 
C) $60 billion, but the effect would be larger if there were an investment accelerator. 
D) $60 billion, but the effect would be smaller if there were an investment accelerator.

Question 9

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things equal,we would expect that in the short run,

Accepted Answer

A) the price level and real GDP would rise, but in the long run they would both be unaffected. 
B) the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected. 
C) the price level and real GDP would fall, but in the long run they would both be unaffected. 
D) the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected. 
A) the price level and real GDP would rise, but in the long run they would both be unaffected. 
B) the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected. 
C) the price level and real GDP would fall, but in the long run they would both be unaffected. 
D) the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected.

Question 10

If the multiplier is 2.5,the MPC is

Accepted Answer

A) 0.2. 
B) 0.6. 
C) 0.75. 
D) 1.00. 
A) 0.2. 
B) 0.6. 
C) 0.75. 
D) 1.00.

Question 11

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Accepted Answer

A) buy bond to raise the interest rate 
B) buy bonds to lower the interest rate 
C) sell bonds to raise the interest rate 
D) sell bonds to raise the interest rate. 
A) buy bond to raise the interest rate 
B) buy bonds to lower the interest rate 
C) sell bonds to raise the interest rate 
D) sell bonds to raise the interest rate.

Question 12

Which of the following is likely more important for explaining the slope of the aggregate demand curve of a small economy than it is for the United States?

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 13

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th

Question 14

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

Accepted Answer

A) the interest rate to fall so aggregate demand shifts right. 
B) the interest rate to fall so aggregate demand shifts left. 
C) the interest rate to rise so aggregate demand shifts right. 
D) the interest rate to rise so aggregate demand shifts left. 
A) the interest rate to fall so aggregate demand shifts right. 
B) the interest rate to fall so aggregate demand shifts left. 
C) the interest rate to rise so aggregate demand shifts right. 
D) the interest rate to rise so aggregate demand shifts left.

Question 15

According to liquidity preference theory,

Accepted Answer

A) an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand right. 
B) an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand left. 
C) an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand right. 
D) an increase in the price level increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand left. 
A) an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand right. 
B) an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand left. 
C) an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand right. 
D) an increase in the price level increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand left.

Question 16

According to liquidity preference theory,a decrease in the price level shifts the

Accepted Answer

A) money demand curve right so the interest rate increases. 
B) money demand curve right so the interest rate decreases. 
C) money demand curve left so the interest rate decreases. 
D) money demand curve left so the interest rate increases. 
A) money demand curve right so the interest rate increases. 
B) money demand curve right so the interest rate decreases. 
C) money demand curve left so the interest rate decreases. 
D) money demand curve left so the interest rate increases.

Question 17

According to liquidity preference theory investment spending would rise if the price level

Accepted Answer

A) fell making the interest rate rise. 
B) fell making the interest rate fall. 
C) rose making the interest rate rise. 
D) rose making the interest rate fall. 
A) fell making the interest rate rise. 
B) fell making the interest rate fall. 
C) rose making the interest rate rise. 
D) rose making the interest rate fall.

Question 18

The Federal Funds rate is the interest rate

Accepted Answer

A) banks charge each other for short-term loans. 
B) the Fed charges depository institutions for short-term loans. 
C) the Fed pays on deposits. 
D) interest rate on 3 month Treasury bills. 
A) banks charge each other for short-term loans. 
B) the Fed charges depository institutions for short-term loans. 
C) the Fed pays on deposits. 
D) interest rate on 3 month Treasury bills.

Question 19

During recessions,the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A) An increase in government expenditures increases the interest rate so that the Sleepwell Hotel chain decides to build fewer new hotels. 
B) An increase in government expenditures increases aggregate spending so that the Sleepwell Hotel chain finds it profitable to build more new hotels. 
C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by the Sleepwell Hotel chain rises. 
D) An increase in government expenditures decreases the interest rate so that the Sleepwell Hotel chain decides to build more new hotels. 
A) An increase in government expenditures increases the interest rate so that the Sleepwell Hotel chain decides to build fewer new hotels. 
B) An increase in government expenditures increases aggregate spending so that the Sleepwell Hotel chain finds it profitable to build more new hotels. 
C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by the Sleepwell Hotel chain rises. 
D) An increase in government expenditures decreases the interest rate so that the Sleepwell Hotel chain decides to build more new hotels.

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

According to liquidity preference theory,if there were a shortage of money,then

According to the theory of liquidity preference,a decrease in the price level causes the

Which of the following is not an automatic stabilizer?

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

If there is crowding out,which of the following might decrease as government expenditures increased?

Suppose the MPC is .60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion how far does aggregate demand shift? If the government decreases taxes by $200 billion how does aggregate demand shift?

An increase in government spending on goods to build or repair infrastructure

If the marginal propensity to consume is 2/3,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things equal,we would expect that in the short run,

If the multiplier is 2.5,the MPC is

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Which of the following is likely more important for explaining the slope of the aggregate demand curve of a small economy than it is for the United States?

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

According to liquidity preference theory,

According to liquidity preference theory,a decrease in the price level shifts the

According to liquidity preference theory investment spending would rise if the price level

The Federal Funds rate is the interest rate

During recessions,the government tends to run a budget deficit.

Which of the following illustrates how the investment accelerator works?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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