Question 1

According to the crowding-out effect,an increase in government spending

Accepted Answer

A) increases the interest rate and so increases investment spending. 
B) increases the interest rate and so decreases investment spending. 
C) decreases the interest rate and so increases investment spending. 
D) decreases the interest rate and so decreases investment spending. 
A) increases the interest rate and so increases investment spending. 
B) increases the interest rate and so decreases investment spending. 
C) decreases the interest rate and so increases investment spending. 
D) decreases the interest rate and so decreases investment spending.

Question 2

In the long run,fiscal policy primarily affects

Accepted Answer

A) aggregate demand.In the short run, it affects primarily aggregate supply. 
B) aggregate supply.In the short run, it affects primarily saving, investment, and growth. 
C) saving, investment, and growth.In the short run, it affects primarily aggregate demand. 
D) saving, investment, and growth.In the short run, it affects primarily aggregate supply. 
A) aggregate demand.In the short run, it affects primarily aggregate supply. 
B) aggregate supply.In the short run, it affects primarily saving, investment, and growth. 
C) saving, investment, and growth.In the short run, it affects primarily aggregate demand. 
D) saving, investment, and growth.In the short run, it affects primarily aggregate supply.

Question 3

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,people will desire to

Accepted Answer

A) sell interest-bearing assets causing the interest rate to decrease. 
B) sell interest-bearing assets causing the interest rate to increase. 
C) buy interest-bearing assets causing the interest rate to decrease. 
D) buy interest-bearing assets causing the interest rate to increase. 
A) sell interest-bearing assets causing the interest rate to decrease. 
B) sell interest-bearing assets causing the interest rate to increase. 
C) buy interest-bearing assets causing the interest rate to decrease. 
D) buy interest-bearing assets causing the interest rate to increase.

Question 4

Most economists believe that a cut in tax rates

Accepted Answer

A) would generally increase government tax revenue. 
B) would have no effect on aggregate demand. 
C) has a relatively small effect on the aggregate supply curve. 
D) All of the above are correct. 
A) would generally increase government tax revenue. 
B) would have no effect on aggregate demand. 
C) has a relatively small effect on the aggregate supply curve. 
D) All of the above are correct.

Question 5

Suppose that there is a multiplier effect that is greater than one and that there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand right by more than the increase in expenditures?

Accepted Answer

A) an increase in government expenditures. 
B) an increase in net exports. 
C) an increase in investment spending. 
D) All of the above are correct. 
A) an increase in government expenditures. 
B) an increase in net exports. 
C) an increase in investment spending. 
D) All of the above are correct.

Question 6

If the stock market booms

Accepted Answer

A) household spending increases.To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. 
B) household spending increases.To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply. 
C) household spending decreases.To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. 
D) household spending decreases.To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply. 
A) household spending increases.To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. 
B) household spending increases.To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply. 
C) household spending decreases.To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. 
D) household spending decreases.To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply.

Question 7

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,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 8

A decrease in government spending initially and primarily shifts

Accepted Answer

A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) neither aggregate demand nor aggregate supply. 
A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) neither aggregate demand nor aggregate supply.

Question 9

If the government cuts the tax rate,workers get to keep

Accepted Answer

A) less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
B) less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
C) more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
D) more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
A) less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
B) less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
C) more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
D) more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

Question 10

If expected inflation is constant and the nominal interest rate increased 3 percentage points,the real interest rate would

Accepted Answer

A) increase 3 percentage points. 
B) increase, but by less than 3 percentage points. 
C) decrease, but by less than 3 percentage points. 
D) decrease by 3 percentage points. 
A) increase 3 percentage points. 
B) increase, but by less than 3 percentage points. 
C) decrease, but by less than 3 percentage points. 
D) decrease by 3 percentage points.

Question 11

An increase in the U.S.interest rate

Accepted Answer

A) reduces the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to an appreciation of the U.S.dollar. 
A) reduces the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to an appreciation of the U.S.dollar.

Question 12

Automatic stabilizers

Accepted Answer

A) increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D) All of the above are correct. 
A) increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D) All of the above are correct.

Question 13

The multiplier is computed as MPC/(1 - MPC).

Accepted Answer

A) True 
 B)False

Question 14

Taxes tend to

Accepted Answer

A) rise and so shift aggregate demand right during recessions. 
B) rise and so shift aggregate demand left during recessions. 
C) fall and so shift aggregate demand right during recessions. 
D) fall and so shift aggregate demand left during recessions. 
A) rise and so shift aggregate demand right during recessions. 
B) rise and so shift aggregate demand left during recessions. 
C) fall and so shift aggregate demand right during recessions. 
D) fall and so shift aggregate demand left during recessions.

Question 15

The multiplier effect

Accepted Answer

A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects. 
A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.

Question 16

Opponents of active stabilization policy

Accepted Answer

A) advocate a monetary policy designed to offset changes in the unemployment rate. 
B) argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C) believe that the political process creates lags in the implementation of fiscal policy. 
D) None of the above is correct. 
A) advocate a monetary policy designed to offset changes in the unemployment rate. 
B) argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C) believe that the political process creates lags in the implementation of fiscal policy. 
D) None of the above is correct.

Question 17

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 18

For the United States,the most important reason for the downward slope of the aggregate demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following shifts money demand right?

Accepted Answer

A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate but not an increase in the price level 
C) an increase in the price level but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level 
A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate but not an increase in the price level 
C) an increase in the price level but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level

Question 20

If the multiplier is 5,the MPC is

Accepted Answer

A) 0.05. 
B) 0.5. 
C) 0.6. 
D) 0.8. 
A) 0.05. 
B) 0.5. 
C) 0.6. 
D) 0.8.

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

According to the crowding-out effect,an increase in government spending

In the long run,fiscal policy primarily affects

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,people will desire to

Most economists believe that a cut in tax rates

Suppose that there is a multiplier effect that is greater than one and that there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand right by more than the increase in expenditures?

If the stock market booms

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

A decrease in government spending initially and primarily shifts

If the government cuts the tax rate,workers get to keep

If expected inflation is constant and the nominal interest rate increased 3 percentage points,the real interest rate would

An increase in the U.S.interest rate

Automatic stabilizers

The multiplier is computed as MPC/(1 - MPC).

Taxes tend to

The multiplier effect

Opponents of active stabilization policy

Stock prices often rise when the Fed raises interest rates.

For the United States,the most important reason for the downward slope of the aggregate demand curve is the interest-rate effect.

Which of the following shifts money demand right?

If the multiplier is 5,the MPC is

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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