Question 1

Which of the following statements is correct?

Accepted Answer

A) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is stuck. 
D) In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
A) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C) In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is stuck. 
D) In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

Question 2

Which of the following is the most liquid asset?

Accepted Answer

A) corporate bonds. 
B) fine art. 
C) deposits that can be withdrawn using ATMs. 
D) mutual funds. 
A) corporate bonds. 
B) fine art. 
C) deposits that can be withdrawn using ATMs. 
D) mutual funds.

Question 3

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply 
A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply

Question 4

The economy is in long-run equilibrium.The aggregate demand curve shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is .75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A) raise both taxes and expenditures by $80 billion dollars. 
B) raise both taxes and expenditures by $10 billion dollars. 
C) reduce both taxes and expenditures by $80 billion dollars. 
D) reduce both taxes and expenditures by $10 billion dollars. 
A) raise both taxes and expenditures by $80 billion dollars. 
B) raise both taxes and expenditures by $10 billion dollars. 
C) reduce both taxes and expenditures by $80 billion dollars. 
D) reduce both taxes and expenditures by $10 billion dollars.

Question 5

If the MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A) $80 billion. 
B) $125 billion. 
C) $500 billion. 
D) $800 billion. 
A) $80 billion. 
B) $125 billion. 
C) $500 billion. 
D) $800 billion.

Question 6

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Accepted Answer

A) supply of money until the interest rate increases. 
B) supply of money until the interest rate decreases. 
C) demand for money until the interest rate increases. 
D) demand for money until the interest rate decreases. 
A) supply of money until the interest rate increases. 
B) supply of money until the interest rate decreases. 
C) demand for money until the interest rate increases. 
D) demand for money until the interest rate decreases.

Question 7

Suppose there were a large decline in net exports.If the Fed wanted to stabilize output it could

Accepted Answer

A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates. 
A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates.

Question 8

Fiscal policy refers to the idea that aggregate demand is changed by changes in

Accepted Answer

A) the money supply. 
B) government spending and taxes. 
C) trade policy. 
D) All of the above are correct. 
A) the money supply. 
B) government spending and taxes. 
C) trade policy. 
D) All of the above are correct.

Question 9

In which case does the aggregate demand curve shift right?

Accepted Answer

A) the price level rises, making the interest rate drop 
B) the price level falls, making the interest rate drop 
C) the money supply increases, making the interest rate drop 
D) the money supply decreases, making the interest rate drop 
A) the price level rises, making the interest rate drop 
B) the price level falls, making the interest rate drop 
C) the money supply increases, making the interest rate drop 
D) the money supply decreases, making the interest rate drop

Question 10

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S.mo

Question 11

Which of the following shifts aggregate demand right?

Accepted Answer

A) The price level rises. 
B) The price level falls. 
C) The money supply falls. 
D) None of the above is correct. 
A) The price level rises. 
B) The price level falls. 
C) The money supply falls. 
D) None of the above is correct.

Question 12

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

Accepted Answer

A) increase, which makes output demanded increase. 
B) increase, which makes output demanded decrease. 
C) decrease, which makes output demanded increase. 
D) decrease, which makes output demanded decrease. 
A) increase, which makes output demanded increase. 
B) increase, which makes output demanded decrease. 
C) decrease, which makes output demanded increase. 
D) decrease, which makes output demanded decrease.

Question 13

When the interest rate decreases,the opportunity cost of holding money

Accepted Answer

A) increases, so the quantity of money demanded increases. 
B) increases, so the quantity of money demanded decreases. 
C) decreases, so the quantity of money demanded increases. 
D) decreases, so the quantity of money demanded decreases. 
A) increases, so the quantity of money demanded increases. 
B) increases, so the quantity of money demanded decreases. 
C) decreases, so the quantity of money demanded increases. 
D) decreases, so the quantity of money demanded decreases.

Question 14

If the interest rate is below the Fed's target,the Fed would

Accepted Answer

A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply. 
A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply.

Question 15

Monetary policy

Accepted Answer

A) can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented. 
B) can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented. 
C) cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon after policy is implemented. 
D) cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented. 
A) can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented. 
B) can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented. 
C) cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon after policy is implemented. 
D) cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.

Question 16

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output it could

Accepted Answer

A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply. 
A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply.

Question 17

If the interest rate is above the Fed's target,the Fed should

Accepted Answer

A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply. 
A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply.

Question 18

The most extreme example of a temporary tax cut was the one announced in 1992 by President Bush.The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A) zero. 
B) likely smaller than if the cut had been permanent. 
C) likely about the same as if the cut had been permanent. 
D) likely larger than if the cut had been permanent. 
A) zero. 
B) likely smaller than if the cut had been permanent. 
C) likely about the same as if the cut had been permanent. 
D) likely larger than if the cut had been permanent.

Question 19

Aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Accepted Answer

A) repeal an investment tax credit or increase the money supply 
B) repeal an investment tax credit or decrease the money supply 
C) institute an investment tax credit or increase the money supply 
D) institute an investment tax credit or decrease the money supply 
A) repeal an investment tax credit or increase the money supply 
B) repeal an investment tax credit or decrease the money supply 
C) institute an investment tax credit or increase the money supply 
D) institute an investment tax credit or decrease the money supply

Question 20

During recessions,automatic stabilizers tend to make the government's budget

Accepted Answer

A) move toward deficit. 
B) move toward surplus. 
C) move toward balance. 
D) not necessarily move the budget in any particular direction. 
A) move toward deficit. 
B) move toward surplus. 
C) move toward balance. 
D) not necessarily move the budget in any particular direction.

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

Which of the following statements is correct?

Which of the following is the most liquid asset?

Which of the following shifts aggregate demand to the right?

If the MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Suppose there were a large decline in net exports.If the Fed wanted to stabilize output it could

Fiscal policy refers to the idea that aggregate demand is changed by changes in

In which case does the aggregate demand curve shift right?

What is the difference between monetary policy and fiscal policy?

Which of the following shifts aggregate demand right?

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

When the interest rate decreases,the opportunity cost of holding money

If the interest rate is below the Fed's target,the Fed would

Monetary policy

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output it could

If the interest rate is above the Fed's target,the Fed should

The most extreme example of a temporary tax cut was the one announced in 1992 by President Bush.The effect of that tax cut on consumer spending and aggregate demand was

Aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

During recessions,automatic stabilizers tend to make the government's budget

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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