Question 1

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand, but changes in the money supply do not.

Question 2

During expansions,automatic stabilizers make government expenditures

Accepted Answer

A) and taxes fall. 
B) and taxes rise. 
C) rise, and taxes fall. 
D) fall and taxes rise. 
A) and taxes fall. 
B) and taxes rise. 
C) rise, and taxes fall. 
D) fall and taxes rise.

Question 3

In the short run,

Accepted Answer

A) the price level alone adjusts to balance the supply and demand for money. 
B) output responds to changes in the aggregate demand for goods and services. 
C) changes in the money supply cause a proportional change in the price level. 
D) increases in the money supply shift the aggregate supply curve causing output to rise. 
A) the price level alone adjusts to balance the supply and demand for money. 
B) output responds to changes in the aggregate demand for goods and services. 
C) changes in the money supply cause a proportional change in the price level. 
D) increases in the money supply shift the aggregate supply curve causing output to rise.

Question 4

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A) multiplier effect. 
B) crowding-out effect. 
C) accelerator effect. 
D) Riccardian equivalence effect. 
A) multiplier effect. 
B) crowding-out effect. 
C) accelerator effect. 
D) Riccardian equivalence effect.

Question 5

According to the theory of liquidity preference,the money supply

Accepted Answer

A) and money demand are positively related to the interest rate. 
B) and money demand are negatively related to the interest rate. 
C) is negatively related to the interest rate while money demand is positively related to the interest rate. 
D) is independent of the interest rate, while money demand is negatively related to the interest rate. 
A) and money demand are positively related to the interest rate. 
B) and money demand are negatively related to the interest rate. 
C) is negatively related to the interest rate while money demand is positively related to the interest rate. 
D) is independent of the interest rate, while money demand is negatively related to the interest rate.

Question 6

An increase in the price level shifts the money demand curve to the left making interest rates rise.

Accepted Answer

A) True 
 B)False

Question 7

For the following questions, use the diagram below:
Figure 34-3
  
-Refer to Figure 34-3.Which of the following would cause the aggregate demand curve to shift from AD₁ to AD₂?

Accepted Answer

A) an increase in government purchases 
B) a decrease in stock prices 
C) consumers and firms become more optimistic about the future. 
D) an increase in the price level 
A) an increase in government purchases 
B) a decrease in stock prices 
C) consumers and firms become more optimistic about the future. 
D) an increase in the price level

Question 8

The marginal propensity to consume (MPC)is defined as the fraction of

Accepted Answer

A) extra income that a household consumes rather than saves. 
B) extra income that a household either consumes or saves. 
C) total income that a household consumes rather than saves. 
D) total income that a household either consumes or saves. 
A) extra income that a household consumes rather than saves. 
B) extra income that a household either consumes or saves. 
C) total income that a household consumes rather than saves. 
D) total income that a household either consumes or saves.

Question 9

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls,people need l

Question 10

Open-market purchases

Accepted Answer

A) increase investment and real GDP. 
B) decrease investment and increase real GDP. 
C) increase investment and decrease real GDP. 
D) decrease investment and real GDP. 
A) increase investment and real GDP. 
B) decrease investment and increase real GDP. 
C) increase investment and decrease real GDP. 
D) decrease investment and real GDP.

Question 11

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) Unemployment rises as the economy moves from a to b. 
B) Either fiscal or monetary policy could be used to move the economy from b to a. 
C) If the economy is left alone, then as the economy moves from b to long-run equilibrium, the price level will fall farther. 
D) All of the above are correct. 
A) Unemployment rises as the economy moves from a to b. 
B) Either fiscal or monetary policy could be used to move the economy from b to a. 
C) If the economy is left alone, then as the economy moves from b to long-run equilibrium, the price level will fall farther. 
D) All of the above are correct.

Question 12

Which of the following policies would Keynes' followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A) decrease taxes 
B) increase government expenditures 
C) increase the money supply 
D) None of the above is correct. 
A) decrease taxes 
B) increase government expenditures 
C) increase the money supply 
D) None of the above is correct.

Question 13

If the inflation rate is zero,then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 14

Assuming multiplier but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A) demand right by more than $100 billion. 
B) demand right by less than $100 billion. 
C) supply left by more than $100 billion. 
D) supply left by less than $100 billion. 
A) demand right by more than $100 billion. 
B) demand right by less than $100 billion. 
C) supply left by more than $100 billion. 
D) supply left by less than $100 billion.

Question 15

Most economists believe that fiscal policy

Accepted Answer

A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand. 
A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand.

Question 16

The Kennedy tax cut of 1964 was

Accepted Answer

A) successful in stimulating the economy. 
B) designed to shift the aggregate demand curve to the right. 
C) designed to shift the aggregate supply curve to the right. 
D) All of the above are correct. 
A) successful in stimulating the economy. 
B) designed to shift the aggregate demand curve to the right. 
C) designed to shift the aggregate supply curve to the right. 
D) All of the above are correct.

Question 17

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,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 18

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 19

Assume that the MPC is 0.75.The multiplier is

Accepted Answer

A) .75. 
B) 4/3. 
C) 4. 
D) 7.5 
A) .75. 
B) 4/3. 
C) 4. 
D) 7.5

Question 20

People own or hold money primarily because it

Accepted Answer

A) has a guaranteed nominal return. 
B) serves as a store of value. 
C) can directly be used to buy goods and services. 
D) functions as a unit of account. 
A) has a guaranteed nominal return. 
B) serves as a store of value. 
C) can directly be used to buy goods and services. 
D) functions as a unit of account.

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

In recent years,the Fed has chosen to target interest rates rather than the money supply because

During expansions,automatic stabilizers make government expenditures

In the short run,

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

According to the theory of liquidity preference,the money supply

An increase in the price level shifts the money demand curve to the left making interest rates rise.

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.Which of the following would cause the aggregate demand curve to shift from AD₁ to AD₂?

The marginal propensity to consume (MPC)is defined as the fraction of

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Open-market purchases

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

Which of the following policies would Keynes' followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

If the inflation rate is zero,then the nominal and real interest rate are the same.

Assuming multiplier but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Most economists believe that fiscal policy

The Kennedy tax cut of 1964 was

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

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Assume that the MPC is 0.75.The multiplier is

People own or hold money primarily because it

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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