Question 1

Which of the following shifts money demand to the right?

Accepted Answer

A) an increase in the price level 
B) a decrease in the price level 
C) an increase in the interest rate 
D) a decrease in the interest rate 
A) an increase in the price level 
B) a decrease in the price level 
C) an increase in the interest rate 
D) a decrease in the interest rate

Question 2

The government-purchases multiplier is defined as

Accepted Answer

A) MPC. 
B) 1 - MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) . 
A) MPC. 
B) 1 - MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) .

Question 3

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Accepted Answer

A) interest rates rise as the Fed reduces the quantity of money demanded. 
B) interest rates fall as the Fed reduces the supply of money. 
C) people will want to hold less money as the cost of holding it falls. 
D) people will want to hold more money as the cost of holding it falls. 
A) interest rates rise as the Fed reduces the quantity of money demanded. 
B) interest rates fall as the Fed reduces the supply of money. 
C) people will want to hold less money as the cost of holding it falls. 
D) people will want to hold more money as the cost of holding it falls.

Question 4

For the following questions, use the diagram below:
Figure 34-3
  
-Refer to Figure 34-3.Which of the following is correct?

Accepted Answer

A) A wave of optimism could move the economy from a to B 
B) If aggregate demand moves from AD₁ to AD₂ the economy will stay at b in both the short and long run. 
C) It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. 
D) All of the above are correct. 
A) A wave of optimism could move the economy from a to B 
B) If aggregate demand moves from AD₁ to AD₂ the economy will stay at b in both the short and long run. 
C) It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. 
D) All of the above are correct.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

For the following questions, consult the diagram below:
Figure 34-1
  
-Refer to Figure 34-1.There is excess money demand at an interest rate of

Accepted Answer

A) 2 percent. 
B) 3 percent. 
C) 4 percent. 
D) None of the above is correct. 
A) 2 percent. 
B) 3 percent. 
C) 4 percent. 
D) None of the above is correct.

Question 7

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A) buy bonds and raise the reserve requirement 
B) buy bonds and lower the reserve requirement 
C) sell bonds and raise the reserve requirement 
D) sell bonds and lower the reserve requirement 
A) buy bonds and raise the reserve requirement 
B) buy bonds and lower the reserve requirement 
C) sell bonds and raise the reserve requirement 
D) sell bonds and lower the reserve requirement

Question 8

In the short run,a decrease in the money supply causes interest rates to

Accepted Answer

A) increase, and aggregate demand to shift right. 
B) increase, and aggregate demand to shift left. 
C) decrease, and aggregate demand to shift right. 
D) decrease, and aggregate demand to shift left. 
A) increase, and aggregate demand to shift right. 
B) increase, and aggregate demand to shift left. 
C) decrease, and aggregate demand to shift right. 
D) decrease, and aggregate demand to shift left.

Question 9

For the following questions, use the diagram below:
Figure 34-3
  
-Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be

Accepted Answer

A) an increase in the money supply. 
B) a decrease in government purchases. 
C) an increase in taxes. 
D) All of the above are correct. 
A) an increase in the money supply. 
B) a decrease in government purchases. 
C) an increase in taxes. 
D) All of the above are correct.

Question 10

According to the theory of liquidity preference,an increase 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.

Question 11

When the price level falls,the interest rate

Accepted Answer

A) rises.When the money supply falls, the interest rate rises. 
B) rises.When the money supply falls, the interest rate falls. 
C) falls.When the money supply falls, the interest rate rises. 
D) falls.When the money supply falls, the interest rate falls. 
A) rises.When the money supply falls, the interest rate rises. 
B) rises.When the money supply falls, the interest rate falls. 
C) falls.When the money supply falls, the interest rate rises. 
D) falls.When the money supply falls, the interest rate falls.

Question 12

Opponents of active stabilization policy

Accepted Answer

A) generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B) generally agree that fiscal policy has no impact in the long run. 
C) believe some effects of monetary policy may be long-lived. 
D) think the Fed should simply try to fine tune the economy. 
A) generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B) generally agree that fiscal policy has no impact in the long run. 
C) believe some effects of monetary policy may be long-lived. 
D) think the Fed should simply try to fine tune the economy.

Question 13

Figure 34-2
  
-In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?

Accepted Answer

A) 1, 2, 3, 4 
B) 1, 4, 3, 2 
C) 3, 4, 2, 1 
D) 3, 2, 1, 4 
A) 1, 2, 3, 4 
B) 1, 4, 3, 2 
C) 3, 4, 2, 1 
D) 3, 2, 1, 4

Question 14

The positive feedback from aggregate demand to investment is called

Accepted Answer

A) the investment multiplier. 
B) the stock-market effect. 
C) the investment accelerator. 
D) the crowding-in multiplier. 
A) the investment multiplier. 
B) the stock-market effect. 
C) the investment accelerator. 
D) the crowding-in multiplier.

Question 15

Sometimes during wars government expenditures are larger than normal.To reduce the effects this spending creates on interest rates

Accepted Answer

A) the Federal Reserve could increase the money supply by buying bonds. 
B) the Federal Reserve could increase the money supply by selling bonds. 
C) the Federal Reserve could decrease the money supply by buying bonds. 
D) the Federal Reserve could decrease the money supply by selling bonds. 
A) the Federal Reserve could increase the money supply by buying bonds. 
B) the Federal Reserve could increase the money supply by selling bonds. 
C) the Federal Reserve could decrease the money supply by buying bonds. 
D) the Federal Reserve could decrease the money supply by selling bonds.

Question 16

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate demand curve is correct?

Accepted Answer

A) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct. 
A) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct.

Question 17

The economy is in long-run equilibrium.Aggregate demand then shifts left $50 billion.The government wants to change its spending in order to avoid a recession.If the crowding-out effect is always half as strong as the multiplier effect,and if the MPC equals 0.9,by how much does government purchases have to change?

Accepted Answer

A) increase $10 billion 
B) increase $50 billion 
C) increase $100 billion 
D) None of the above is correct. 
A) increase $10 billion 
B) increase $50 billion 
C) increase $100 billion 
D) None of the above is correct.

Question 18

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A) Jim increases his consumption spending. 
B) Firms sell fewer shares of new stock. 
C) Firms spend less on investment. 
D) None of the above is correct. 
A) Jim increases his consumption spending. 
B) Firms sell fewer shares of new stock. 
C) Firms spend less on investment. 
D) None of the above is correct.

Question 19

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will

Accepted Answer

A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase. 
A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase.

Question 20

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

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

Which of the following shifts money demand to the right?

The government-purchases multiplier is defined as

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.Which of the following is correct?

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

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.There is excess money demand at an interest rate of

Which of the following Fed actions would both increase the money supply?

In the short run,a decrease in the money supply causes interest rates to

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be

According to the theory of liquidity preference,an increase in the price level causes the

When the price level falls,the interest rate

Opponents of active stabilization policy

Figure 34-2 -In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?

The positive feedback from aggregate demand to investment is called

Sometimes during wars government expenditures are larger than normal.To reduce the effects this spending creates on interest rates

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate demand curve is correct?

Which of the following actions might we logically expect to result from rising stock prices?

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

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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