Question 1

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 3

People choose to hold a smaller quantity of money if

Accepted Answer

A)  the interest rate rises,which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls,which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises,which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls,which causes the opportunity cost of holding money to fall. 
A)  the interest rate rises,which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls,which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises,which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls,which causes the opportunity cost of holding money to fall.

Question 4

Assume the MPC is 0.75.Assume there is a multiplier effect and that the total crowding-out effect is $6 billion.An increase in government purchases of $10 billion will shift aggregate demand to the

Accepted Answer

A)  left by $24 billion. 
B)  left by $36 billion. 
C)  right by $34 billion. 
D)  right by $36 billion. 
A)  left by $24 billion. 
B)  left by $36 billion. 
C)  right by $34 billion. 
D)  right by $36 billion.

Question 5

Which of the following statements is correct for the long run?

Accepted Answer

A)  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)  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)  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 relatively slow to adjust. 
D)  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)  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)  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)  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 relatively slow to adjust. 
D)  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 6

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 7

In the long run,fiscal policy primarily affects

Accepted Answer

A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply. 
A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply.

Question 8

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

Accepted Answer

A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate. 
A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate.

Question 9

Suppose that businesses and consumers become 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 10

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

Accepted Answer

A) True 
 B)False

Question 11

If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Accepted Answer

A)  aggregate demand falls by 10/3 x $20 billion. 
B)  aggregate demand falls by 7/3 x $20 billion. 
C)  aggregate demand falls by 7/10 x $20 billion. 
D)  None of the above is correct. 
A)  aggregate demand falls by 10/3 x $20 billion. 
B)  aggregate demand falls by 7/3 x $20 billion. 
C)  aggregate demand falls by 7/10 x $20 billion. 
D)  None of the above is correct.

Question 12

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 13

Assume the multiplier is 5 and that the crowding-out effect is $20 billion.An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Accepted Answer

A)  right by $150 billion. 
B)  right by $70 billion. 
C)  right by $30 billion. 
D)  None of the above is correct. 
A)  right by $150 billion. 
B)  right by $70 billion. 
C)  right by $30 billion. 
D)  None of the above is correct.

Question 14

As income rises

Accepted Answer

A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls. 
A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls.

Question 15

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

Accepted Answer

A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise. 
A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise.

Question 16

Imagine that the government increases its spending by $20 billion.Which of the following by itself would tend to make the change in aggregate demand different from $20 billion?

Accepted Answer

A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect 
A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect

Question 17

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct. 
A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct.

Question 18

The term crowding-out effect refers to

Accepted Answer

A)  the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B)  the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C)  the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D)  the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase. 
A)  the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B)  the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C)  the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D)  the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.

Question 19

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 20

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D)  All of the above are correct. 
A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D)  All of the above are correct.

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

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Which of the following is correct?

People choose to hold a smaller quantity of money if

Assume the MPC is 0.75.Assume there is a multiplier effect and that the total crowding-out effect is $6 billion.An increase in government purchases of $10 billion will shift aggregate demand to the

Which of the following statements is correct for the long run?

The Employment Act of 1946 states that

In the long run,fiscal policy primarily affects

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

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

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

If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect,but no crowding out and no investment accelerator,then

According to classical macroeconomic theory,

Assume the multiplier is 5 and that the crowding-out effect is $20 billion.An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

As income rises

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

Imagine that the government increases its spending by $20 billion.Which of the following by itself would tend to make the change in aggregate demand different from $20 billion?

The lag problem associated with fiscal policy is due mostly to

The term crowding-out effect refers to

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

An increase in government spending on goods to build or repair infrastructure

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

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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