Question 1

People will want to hold more money if the price level

Accepted Answer

A) or the interest rate increases. 
B) or the interest rate decreases. 
C) increases or the interest rate decreases. 
D) decreases or the interest rate increases. 
A) or the interest rate increases. 
B) or the interest rate decreases. 
C) increases or the interest rate decreases. 
D) decreases or the interest rate increases.

Question 2

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?

Accepted Answer

A) increase government expenditures or increase the money supply 
B) increase government expenditures or decrease the money supply 
C) decrease government expenditures or increase the money supply 
D) decrease government expenditures or decrease the money supply 
A) increase government expenditures or increase the money supply 
B) increase government expenditures or decrease the money supply 
C) decrease government expenditures or increase the money supply 
D) decrease government expenditures or decrease the money supply

Question 3

In the long run,changes in the money supply affect

Accepted Answer

A) prices. 
B) output. 
C) unemployment rates. 
D) All of the above. 
A) prices. 
B) output. 
C) unemployment rates. 
D) All of the above.

Question 4

Which of the following shifts aggregate demand right?

Accepted Answer

A) an increase in government expenditures or a decrease in the price level 
B) a decrease in government expenditures or an increase in the price level 
C) an increase in government expenditures, but not a change in the price level 
D) a decrease in the price level, but not an increase in government expenditures 
A) an increase in government expenditures or a decrease in the price level 
B) a decrease in government expenditures or an increase in the price level 
C) an increase in government expenditures, but not a change in the price level 
D) a decrease in the price level, but not an increase in government expenditures

Question 5

An increase in the MPC

Accepted Answer

A) increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B) increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C) decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D) decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
A) increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B) increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C) decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D) decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

Question 6

According to liquidity preference theory,a decrease 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 7

When the Fed lowers the growth rate of the money supply,it must take into account

Accepted Answer

A) only the short-run effect on production. 
B) only the short-run effects on inflation and production. 
C) only the long-run effect on inflation. 
D) the long-run effect on inflation as well as the short-run effect on production. 
A) only the short-run effect on production. 
B) only the short-run effects on inflation and production. 
C) only the long-run effect on inflation. 
D) the long-run effect on inflation as well as the short-run effect on production.

Question 8

Critics of stabilization policy argue that

Accepted Answer

A) there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B) the impact of policy may last longer than the problem it was designed to offset. 
C) policy can be a source of, instead of a cure for, economic fluctuations. 
D) All of the above are correct. 
A) there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B) the impact of policy may last longer than the problem it was designed to offset. 
C) policy can be a source of, instead of a cure for, economic fluctuations. 
D) All of the above are correct.

Question 9

In recent years,the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A) bank reserves. 
B) the monetary growth rate. 
C) the exchange rate. 
D) the federal funds rate. 
A) bank reserves. 
B) the monetary growth rate. 
C) the exchange rate. 
D) the federal funds rate.

Question 10

Which of the following is the most liquid asset?

Accepted Answer

A) capital goods 
B) stocks and bonds with a low risk 
C) stocks and bonds with a high risk 
D) funds in a checking account 
A) capital goods 
B) stocks and bonds with a low risk 
C) stocks and bonds with a high risk 
D) funds in a checking account

Question 11

Suppose that businesses and consumers get much more optimistic about the future of the economy.To stabilize output the Federal Reserve 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 12

An increase in government purchases is likely to

Accepted Answer

A) decrease interest rates. 
B) result in a net decrease in aggregate demand. 
C) crowd out investment spending by business. 
D) decrease money demand. 
A) decrease interest rates. 
B) result in a net decrease in aggregate demand. 
C) crowd out investment spending by business. 
D) decrease money demand.

Question 13

If the stock market booms,

Accepted Answer

A) aggregate demand increases, which the Fed could offset by increasing the money supply. 
B) aggregate supply increases, which the Fed could offset by increasing the money supply. 
C) aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D) aggregate supply increases, which the Fed could offset by decreasing the money supply. 
A) aggregate demand increases, which the Fed could offset by increasing the money supply. 
B) aggregate supply increases, which the Fed could offset by increasing the money supply. 
C) aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D) aggregate supply increases, which the Fed could offset by decreasing the money supply.

Question 14

Keynes used the term "animal spirits" to refer to

Accepted Answer

A) policy makers harming the economy in the pursuit of self interest. 
B) arbitrary changes in attitudes of household and firms. 
C) mean spirited economists who believed in the classical dichotomy. 
D) firms' relentless efforts to maximize profits. 
A) policy makers harming the economy in the pursuit of self interest. 
B) arbitrary changes in attitudes of household and firms. 
C) mean spirited economists who believed in the classical dichotomy. 
D) firms' relentless efforts to maximize profits.

Question 15

According to the crowding-out effect,a decrease 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 16

Keynes argued that

Accepted Answer

A) irrational waves of pessimism would cause a decrease in aggregate demand and increase unemployment. 
B) irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment. 
C) changes in business and consumer expectations generally stabilize the economy. 
D) All of the above are correct. 
A) irrational waves of pessimism would cause a decrease in aggregate demand and increase unemployment. 
B) irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment. 
C) changes in business and consumer expectations generally stabilize the economy. 
D) All of the above are correct.

Question 17

Suppose that there are both multiplier and crowding out effects but not accelerator effects.An increase in government expenditures would definitely

Accepted Answer

A) shift aggregate demand right by a larger amount than the increase in government expenditures. 
B) shift aggregate demand right by the same amount as an the increase in government expenditures. 
C) shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D) None of the above is correct. 
A) shift aggregate demand right by a larger amount than the increase in government expenditures. 
B) shift aggregate demand right by the same amount as an the increase in government expenditures. 
C) shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D) None of the above is correct.

Question 18

In the short run,an increase 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 19

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Accepted Answer

A) buying bonds to increase the money supply 
B) buying bonds to decrease the money supply. 
C) selling bonds to increase the money supply. 
D) selling bonds to decrease the money supply. 
A) buying bonds to increase the money supply 
B) buying bonds to decrease the money supply. 
C) selling bonds to increase the money supply. 
D) selling bonds to decrease the money supply.

Question 20

In principle the government could increase the money supply or government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

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

People will want to hold more money if the price level

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?

In the long run,changes in the money supply affect

Which of the following shifts aggregate demand right?

An increase in the MPC

According to liquidity preference theory,a decrease in the price level causes the interest rate to

When the Fed lowers the growth rate of the money supply,it must take into account

Critics of stabilization policy argue that

In recent years,the Federal Reserve has conducted policy by setting a target for

Which of the following is the most liquid asset?

Suppose that businesses and consumers get much more optimistic about the future of the economy.To stabilize output the Federal Reserve could

An increase in government purchases is likely to

If the stock market booms,

Keynes used the term "animal spirits" to refer to

According to the crowding-out effect,a decrease in government spending

Keynes argued that

Suppose that there are both multiplier and crowding out effects but not accelerator effects.An increase in government expenditures would definitely

In the short run,an increase in the money supply causes interest rates to

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

In principle the government could increase the money supply or government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

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

Filters