Question 1

The multiplier for changes in government spending is calculated as

Accepted Answer

A) MPC. 
B) 1 - MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) . 
A) MPC. 
B) 1 - MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) .

Question 2

A 2009 article in The Economist noted that

Accepted Answer

A) recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision. 
B) research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts. 
C) most of the evidence on multipliers for government spending is based on changes in military expenditures. 
D) All of the above are correct. 
A) recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision. 
B) research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts. 
C) most of the evidence on multipliers for government spending is based on changes in military expenditures. 
D) All of the above are correct.

Question 3

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase. 
A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase.

Question 4

Figure 21-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.  
-Refer to Figure 21-2. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A) nominal output 
B) real output 
C) the opportunity cost of holding money 
D) the quantity of money 
A) nominal output 
B) real output 
C) the opportunity cost of holding money 
D) the quantity of money

Question 5

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, 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 6

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A) firms may believe the relative price of their output has risen. 
B) real wealth declines. 
C) the interest rate increases. 
D) the exchange rate increases. 
A) firms may believe the relative price of their output has risen. 
B) real wealth declines. 
C) the interest rate increases. 
D) the exchange rate increases.

Question 7

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply. 
A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply.

Question 8

Opponents of active stabilization policy

Accepted Answer

A) advocate a monetary policy designed to offset changes in the unemployment rate. 
B) argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C) believe that the political process creates lags in the implementation of fiscal policy. 
D) None of the above is correct. 
A) advocate a monetary policy designed to offset changes in the unemployment rate. 
B) argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C) believe that the political process creates lags in the implementation of fiscal policy. 
D) None of the above is correct.

Question 9

Opponents of active stabilization policy

Accepted Answer

A) generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B) generally agree that fiscal policy has no impact in the long run. 
C) believe some effects of monetary policy may be long-lived. 
D) think the Fed should simply try to fine tune the economy. 
A) generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B) generally agree that fiscal policy has no impact in the long run. 
C) believe some effects of monetary policy may be long-lived. 
D) think the Fed should simply try to fine tune the economy.

Question 10

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 11

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would not be an expected response 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, In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. 
A) When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.

Question 13

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 14

Macroeconomic forecasts are

Accepted Answer

A) precise; this makes policy lags less relevant. 
B) precise; this makes policy lags more relevant. 
C) imprecise; this makes policy lags less relevant. 
D) imprecise; this makes policy lags more relevant. 
A) precise; this makes policy lags less relevant. 
B) precise; this makes policy lags more relevant. 
C) imprecise; this makes policy lags less relevant. 
D) imprecise; this makes policy lags more relevant.

Question 15

Figure 21-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.  
-Refer to Figure 21-2. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2. 
A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.

Question 16

Figure 21-3.  
-Refer to Figure 21-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A) consumption 
B) investment 
C) net exports 
D) government spending 
A) consumption 
B) investment 
C) net exports 
D) government spending

Question 17

According to classical macroeconomic theory,

Accepted Answer

A) output is determined by the supplies of capital and labor and the available production technology. 
B) for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C) given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D) All of the above are correct. 
A) output is determined by the supplies of capital and labor and the available production technology. 
B) for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C) given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D) All of the above are correct.

Question 18

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 19

If the MPC is 2/3 then the multiplier is

Accepted Answer

A) 3/2, so a $100 increase in government spending increases aggregate demand by $150. 
B) 3/2, so a $100 increase in government spending increases aggregate supply by $150. 
C) 3, so a $100 increase in government spending increases aggregate demand by $300. 
D) 3, so a $100 increase in government spending increases aggregate supply by $300. 
A) 3/2, so a $100 increase in government spending increases aggregate demand by $150. 
B) 3/2, so a $100 increase in government spending increases aggregate supply by $150. 
C) 3, so a $100 increase in government spending increases aggregate demand by $300. 
D) 3, so a $100 increase in government spending increases aggregate supply by $300.

Question 20

If the multiplier is 5, then the MPC is

Accepted Answer

A) 0.05. 
B) 0.5. 
C) 0.6. 
D) 0.8. 
A) 0.05. 
B) 0.5. 
C) 0.6. 
D) 0.8.

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The multiplier for changes in government spending is calculated as

A 2009 article in The Economist noted that

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Supply-side economists believe that changes in government purchases affect

Opponents of active stabilization policy

Opponents of active stabilization policy

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

If the MPC is 4/5, the multiplier is 5/4.

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Open-market purchases

Macroeconomic forecasts are

Figure 21-3. -Refer to Figure 21-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

According to classical macroeconomic theory,

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

If the MPC is 2/3 then the multiplier is

If the multiplier is 5, then the MPC is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 21-3. -Refer to Figure 21-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?