Question 1

Which of the following shifts aggregate demand to the left?

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 2

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC)= 1/(1-.8)= 1

Question 3

Which of the following shifts money demand left?

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 4

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A) the wealth effect 
B) the interest-rate effect 
C) the exchange-rate effect 
D) the real-wage effect 
A) the wealth effect 
B) the interest-rate effect 
C) the exchange-rate effect 
D) the real-wage effect

Question 5

The most important reason for the slope of the aggregate demand curve is that as the price level

Accepted Answer

A) increases, interest rates increase, and investment decreases. 
B) increases, interest rates decrease, and investment increases. 
C) decreases, interest rates increase, and investment increases. 
D) decreases, interest rates decrease, and investment decreases. 
A) increases, interest rates increase, and investment decreases. 
B) increases, interest rates decrease, and investment increases. 
C) decreases, interest rates increase, and investment increases. 
D) decreases, interest rates decrease, and investment decreases.

Question 6

Open-market purchases

Accepted Answer

A) increase the price level and real GDP. 
B) decrease the price level and real GDP. 
C) increase the price level and decrease real GDP. 
D) decrease the price level and increase real GDP. 
A) increase the price level and real GDP. 
B) decrease the price level and real GDP. 
C) increase the price level and decrease real GDP. 
D) decrease the price level and increase real GDP.

Question 7

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

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 8

People are likely to want to hold more money if the interest rate

Accepted Answer

A) increases making the opportunity cost of holding money rise. 
B) increases making the opportunity cost of holding money fall. 
C) decreases making the opportunity cost of holding money rise. 
D) decreases making the opportunity cost of holding money fall. 
A) increases making the opportunity cost of holding money rise. 
B) increases making the opportunity cost of holding money fall. 
C) decreases making the opportunity cost of holding money rise. 
D) decreases making the opportunity cost of holding money fall.

Question 9

The Employment Act of 1946 states that

Accepted Answer

A) the Fed should use monetary policy only to control the rate of inflation. 
B) the government should promote full employment and production. 
C) the government should periodically increase the minimum wage and unemployment insurance benefits. 
D) All of the above are correct. 
A) the Fed should use monetary policy only to control the rate of inflation. 
B) the government should promote full employment and production. 
C) the government should periodically increase the minimum wage and unemployment insurance benefits. 
D) All of the above are correct.

Question 10

When the Fed sells government bonds,the reserves of the banking system

Accepted Answer

A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases. 
A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases.

Question 11

Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?

Accepted Answer

A) decrease the money supply 
B) increase government expenditures 
C) increase taxes 
D) All of the above are correct. 
A) decrease the money supply 
B) increase government expenditures 
C) increase taxes 
D) All of the above are correct.

Question 12

Assume a multiplier effect,some crowding out and no accelerator effect An increase in government expenditures changes aggregate demand more

Accepted Answer

A) the smaller the MPC and the farther an increase in income shifts money demand. 
B) the smaller the MPC and the less an increase in income shifts money demand. 
C) the larger the MPC and the farther an increase in income shifts money demand. 
D) the larger the MPC and the less an increase in income shifts money demand. 
A) the smaller the MPC and the farther an increase in income shifts money demand. 
B) the smaller the MPC and the less an increase in income shifts money demand. 
C) the larger the MPC and the farther an increase in income shifts money demand. 
D) the larger the MPC and the less an increase in income shifts money demand.

Question 13

In the short run an increase in government expenditures

Accepted Answer

A) raises the price level, but not real GDP. 
B) raises real GDP, but not the price level. 
C) raises real GDP and the price level. 
D) raises neither real GDP nor the price level. 
A) raises the price level, but not real GDP. 
B) raises real GDP, but not the price level. 
C) raises real GDP and the price level. 
D) raises neither real GDP nor the price level.

Question 14

If the MPC = 3/5,then the government purchases multiplier is

Accepted Answer

A) 5/3. 
B) 5/2. 
C) 5. 
D) 15. 
A) 5/3. 
B) 5/2. 
C) 5. 
D) 15.

Question 15

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 16

For the following questions, consult the diagram below:
Figure 34-1
  
-Refer to Figure 34-1.If the current interest rate is 2 percent,

Accepted Answer

A) there is excess money supply. 
B) people will sell more bonds, which drives interest rates up. 
C) as the money market moves to equilibrium, people will buy more goods. 
D) All of the above are correct. 
A) there is excess money supply. 
B) people will sell more bonds, which drives interest rates up. 
C) as the money market moves to equilibrium, people will buy more goods. 
D) All of the above are correct.

Question 17

People will want to hold less 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 18

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A) the MPC is large because the tax cut is permanent. 
B) the MPC is large because the tax cut is temporary. 
C) the MPC is small because the tax cut is permanent. 
D) the MPC is small because the tax cut is temporary. 
A) the MPC is large because the tax cut is permanent. 
B) the MPC is large because the tax cut is temporary. 
C) the MPC is small because the tax cut is permanent. 
D) the MPC is small because the tax cut is temporary.

Question 19

When the Fed buys government bonds,the reserves of the banking system

Accepted Answer

A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases. 
A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases.

Question 20

Which of the following policy alternatives would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

Accepted Answer

A) increase taxes 
B) increase the money supply 
C) increase government expenditures 
D) All of the above are correct. 
A) increase taxes 
B) increase the money supply 
C) increase government expenditures 
D) All of the above are correct.

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

Which of the following shifts aggregate demand to the left?

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Which of the following shifts money demand left?

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

The most important reason for the slope of the aggregate demand curve is that as the price level

Open-market purchases

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

People are likely to want to hold more money if the interest rate

The Employment Act of 1946 states that

When the Fed sells government bonds,the reserves of the banking system

Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?

Assume a multiplier effect,some crowding out and no accelerator effect An increase in government expenditures changes aggregate demand more

In the short run an increase in government expenditures

If the MPC = 3/5,then the government purchases multiplier is

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.If the current interest rate is 2 percent,

People will want to hold less money if the price level

A tax cut shifts the aggregate demand curve the farthest if

When the Fed buys government bonds,the reserves of the banking system

Which of the following policy alternatives would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

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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