Question 1

If taxes

Accepted Answer

A) increase, consumption increases, aggregate demand shifts right. 
B) increase, consumption decreases, aggregate demand shifts left. 
C) decrease, consumption increases, aggregate demand shifts left. 
D) decrease, consumption decreases, aggregate demand shifts right. 
A) increase, consumption increases, aggregate demand shifts right. 
B) increase, consumption decreases, aggregate demand shifts left. 
C) decrease, consumption increases, aggregate demand shifts left. 
D) decrease, consumption decreases, aggregate demand shifts right.

Question 2

According to liquidity preference theory,the opportunity cost of holding money is

Accepted Answer

A) the interest rate on bonds. 
B) the inflation rate. 
C) the cost of converting bonds to a medium of exchange. 
D) the difference between the inflation rate and the interest rate on bonds. 
A) the interest rate on bonds. 
B) the inflation rate. 
C) the cost of converting bonds to a medium of exchange. 
D) the difference between the inflation rate and the interest rate on bonds.

Question 3

Other things the same,a decrease in the U.S.interest rate

Accepted Answer

A) induces firms to invest more. 
B) shifts money demand to the left. 
C) makes the U.S.dollar appreciate. 
D) increases the opportunity cost of holding dollars. 
A) induces firms to invest more. 
B) shifts money demand to the left. 
C) makes the U.S.dollar appreciate. 
D) increases the opportunity cost of holding dollars.

Question 4

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A) level of real GDP. 
B) rate of inflation. 
C) interest rate. 
D) the Federal Reserve. 
A) level of real GDP. 
B) rate of inflation. 
C) interest rate. 
D) the Federal Reserve.

Question 5

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.This type of effect on spending illustrates

Accepted Answer

A) the multiplier effect. 
B) the crowding-out effect. 
C) the Fisher effect. 
D) None of the above is correct. 
A) the multiplier effect. 
B) the crowding-out effect. 
C) the Fisher effect. 
D) None of the above is correct.

Question 6

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 7

According to liquidity preference theory,the money supply curve would shift if the Fed

Accepted Answer

A) engaged in open-market transactions. 
B) changed the discount rate. 
C) changed the reserve requirement. 
D) did any of the above. 
A) engaged in open-market transactions. 
B) changed the discount rate. 
C) changed the reserve requirement. 
D) did any of the above.

Question 8

Some economists argue that

Accepted Answer

A) monetary policy should actively be used to stabilize the economy. 
B) fiscal policy should actively be used to stabilize the economy. 
C) fiscal policy can be used to shift the AD curve. 
D) All of the above are correct. 
A) monetary policy should actively be used to stabilize the economy. 
B) fiscal policy should actively be used to stabilize the economy. 
C) fiscal policy can be used to shift the AD curve. 
D) All of the above are correct.

Question 9

Economists agree on all of the following except that

Accepted Answer

A) increases in the money supply shift aggregate demand to the right. 
B) in the long run, increases in the money supply increase prices, but not output. 
C) recessions are associated with decreases in consumption, investment, and employment. 
D) government should use fiscal policy to try to stabilize the economy. 
A) increases in the money supply shift aggregate demand to the right. 
B) in the long run, increases in the money supply increase prices, but not output. 
C) recessions are associated with decreases in consumption, investment, and employment. 
D) government should use fiscal policy to try to stabilize the economy.

Question 10

Which of the following is not a response that would result from a decrease in the price level and so help to explain the slope of the aggregate demand curve?

Accepted Answer

A) When interest rates fall, Sleepwell Hotels decides to build some new hotels. 
B) The exchange rate falls, so French restaurants in Paris buy more Iowa pork. 
C) Janet feels wealthier because of the price drop and so she decides to remodel her bathroom. 
D) With prices down and wages fixed by contract, Millio's Frozen Pizzas decides to lay off workers. 
A) When interest rates fall, Sleepwell Hotels decides to build some new hotels. 
B) The exchange rate falls, so French restaurants in Paris buy more Iowa pork. 
C) Janet feels wealthier because of the price drop and so she decides to remodel her bathroom. 
D) With prices down and wages fixed by contract, Millio's Frozen Pizzas decides to lay off workers.

Question 11

The most important automatic stabilizer is

Accepted Answer

A) open-market transactions. 
B) the tax system. 
C) unemployment compensation. 
D) welfare benefits. 
A) open-market transactions. 
B) the tax system. 
C) unemployment compensation. 
D) welfare benefits.

Question 12

According to liquidity preference theory,an increase 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 13

According to liquidity preference theory,the money supply curve is

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) vertical. 
D) horizontal. 
A) upward sloping. 
B) downward sloping. 
C) vertical. 
D) horizontal.

Question 14

If the MPC is 0,the multiplier is

Accepted Answer

A) 0. 
B) 1. 
C) infinite. 
D) None of the above is correct. 
A) 0. 
B) 1. 
C) infinite. 
D) None of the above is correct.

Question 15

Liquidity refers 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 16

Fiscal policy affects the economy

Accepted Answer

A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor long run. 
A) only in the short run. 
B) only in the long run. 
C) in both the short and long run. 
D) in neither the short nor long run.

Question 17

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate demand curve?

Accepted Answer

A) As the money supply increases, the interest rate falls, so spending rises. 
B) As the money supply increases, the interest rate rises, so spending falls. 
C) As the price level increases, the interest rate falls, so spending rises. 
D) As the price level increases, the interest rate rises, so spending falls. 
A) As the money supply increases, the interest rate falls, so spending rises. 
B) As the money supply increases, the interest rate rises, so spending falls. 
C) As the price level increases, the interest rate falls, so spending rises. 
D) As the price level increases, the interest rate rises, so spending falls.

Question 18

If there is excess money demand,people will

Accepted Answer

A) deposit more into interest-bearing accounts, and the interest rate will fall. 
B) deposit more into interest-bearing accounts, and the interest rate will rise. 
C) withdraw money from interest-bearing accounts, and the interest rate will fall. 
D) withdraw money from interest-bearing accounts, and the interest rate will rise. 
A) deposit more into interest-bearing accounts, and the interest rate will fall. 
B) deposit more into interest-bearing accounts, and the interest rate will rise. 
C) withdraw money from interest-bearing accounts, and the interest rate will fall. 
D) withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 19

The short-run effects on the interest rate are

Accepted Answer

A) shown equally well using either liquidity preference theory or classical theory. 
B) best shown using classical theory. 
C) best shown using liquidity preference theory. 
D) not shown well by either liquidity preference theory or classical theory. 
A) shown equally well using either liquidity preference theory or classical theory. 
B) best shown using classical theory. 
C) best shown using liquidity preference theory. 
D) not shown well by either liquidity preference theory or classical theory.

Question 20

The economy is in long-run equilibrium.The aggregate demand curve shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is .60.Suppose the effect on aggregate demand from a change in taxes is 3/5 the size of the change from government expenditures.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A) raise both taxes and expenditures by $40 billion dollars. 
B) raise both taxes and expenditures by $40 billion dollars 
C) reduce both taxes and expenditures by $10 billion dollars 
D) reduce both taxes and expenditures by $10 billion dollars. 
A) raise both taxes and expenditures by $40 billion dollars. 
B) raise both taxes and expenditures by $40 billion dollars 
C) reduce both taxes and expenditures by $10 billion dollars 
D) reduce both taxes and expenditures by $10 billion dollars.

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

If taxes

According to liquidity preference theory,the opportunity cost of holding money is

Other things the same,a decrease in the U.S.interest rate

The theory of liquidity preference assumes that the nominal supply of money is determined by the

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.This type of effect on spending illustrates

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

According to liquidity preference theory,the money supply curve would shift if the Fed

Some economists argue that

Economists agree on all of the following except that

Which of the following is not a response that would result from a decrease in the price level and so help to explain the slope of the aggregate demand curve?

The most important automatic stabilizer is

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

According to liquidity preference theory,the money supply curve is

If the MPC is 0,the multiplier is

Liquidity refers to

Fiscal policy affects the economy

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate demand curve?

If there is excess money demand,people will

The short-run effects on the interest rate are

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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