Question 1

When there is an increase in government expenditures,which of the following raises investment spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out

Question 2

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 3

If the Fed conducts open-market purchases,then which of the following quantities increase(s)?

Accepted Answer

A)  interest rates,prices,and investment spending 
B)  interest rates and prices,but not investment spending 
C)  prices and investment spending,but not interest rates 
D)  interest rates,but not prices or investment spending 
A)  interest rates,prices,and investment spending 
B)  interest rates and prices,but not investment spending 
C)  prices and investment spending,but not interest rates 
D)  interest rates,but not prices or investment spending

Question 4

If the Fed conducts open-market purchases,the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 5

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)  the demand-for-money curve is vertical. 
B)  the supply-of-money curve is vertical. 
C)  the interest rate is measured along the horizontal axis. 
D)  the price level is measured along the vertical axis. 
A)  the demand-for-money curve is vertical. 
B)  the supply-of-money curve is vertical. 
C)  the interest rate is measured along the horizontal axis. 
D)  the price level is measured along the vertical axis.

Question 6

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 7

Figure 34-2.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 34-2.Assume the money market is always in equilibrium,and suppose r1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct?

Accepted Answer

A)  When r = r2,nominal output is higher than it is when r = r1. 
B)  When r = r2,real output is higher than it is when r = r1. 
C)  When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000. 
A)  When r = r2,nominal output is higher than it is when r = r1. 
B)  When r = r2,real output is higher than it is when r = r1. 
C)  When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000.

Question 8

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Accepted Answer

A)  The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B)  The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C)  The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D)  None of the above is correct. 
A)  The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B)  The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C)  The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D)  None of the above is correct.

Question 9

According to liquidity preference theory,if there were a shortage of money,then

Accepted Answer

A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Question 10

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 11

According to liquidity preference theory,the money-supply curve would shift if the Fed

Accepted Answer

A)  engaged in open-market transactions. 
B)  changed the discount rate. 
C)  changed the reserve requirement. 
D)  did any of the above. 
A)  engaged in open-market transactions. 
B)  changed the discount rate. 
C)  changed the reserve requirement. 
D)  did any of the above.

Question 12

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 13

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th

Question 14

According to classical macroeconomic theory,

Accepted Answer

A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B)  for any given level of output,the interest rate adjusts to balance the supply of,and demand for,money. 
C)  output is determined by the supplies of capital and labor and the available production technology. 
D)  All of the above are correct. 
A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B)  for any given level of output,the interest rate adjusts to balance the supply of,and demand for,money. 
C)  output is determined by the supplies of capital and labor and the available production technology. 
D)  All of the above are correct.

Question 15

Figure 34-4.On the figure,MS represents money supply and MD represents money
demand.  
-Refer to Figure 34-4.A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes,resulting in an increase in people's incomes. 
B)  The government reduces government spending,resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money,which decreases the interest rate. 
D)  All of the above are correct. 
A)  The government cuts taxes,resulting in an increase in people's incomes. 
B)  The government reduces government spending,resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money,which decreases the interest rate. 
D)  All of the above are correct.

Question 16

When Congress reduces spending in order to balance the government's budget,it needs to consider

Accepted Answer

A)  both the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth. 
B)  only the short-run effects on aggregate demand and aggregate supply. 
C)  only the long-run effects on saving and growth. 
D)  only the long-run effects on aggregate demand and aggregate supply. 
A)  both the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth. 
B)  only the short-run effects on aggregate demand and aggregate supply. 
C)  only the long-run effects on saving and growth. 
D)  only the long-run effects on aggregate demand and aggregate supply.

Question 17

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 18

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 19

According to liquidity preference theory,an increase in the price level causes the interest rate to

Accepted Answer

A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded. 
A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded.

Question 20

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that Gas-n-Go decides to modernize its gas stations. 
B)  An increase in government expenditures increases the interest rate so that Gas-n-Go decides to modernize its gas stations. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Gas-n-Go rises. 
D)  An increase in government expenditures decreases the interest rate so that Gas-n-Go decides to modernize its gas stations. 
A)  An increase in government expenditures increases aggregate spending so that Gas-n-Go decides to modernize its gas stations. 
B)  An increase in government expenditures increases the interest rate so that Gas-n-Go decides to modernize its gas stations. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Gas-n-Go rises. 
D)  An increase in government expenditures decreases the interest rate so that Gas-n-Go decides to modernize its gas stations.

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

When there is an increase in government expenditures,which of the following raises investment spending?

In the short run,

If the Fed conducts open-market purchases,then which of the following quantities increase(s)?

If the Fed conducts open-market purchases,the money supply

On the graph that depicts the theory of liquidity preference,

The multiplier is computed as MPC / (1 - MPC).

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

According to liquidity preference theory,if there were a shortage of money,then

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

According to liquidity preference theory,the money-supply curve would shift if the Fed

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

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

According to classical macroeconomic theory,

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

When Congress reduces spending in order to balance the government's budget,it needs to consider

Unemployment insurance and welfare programs work as automatic stabilizers.

Open-market purchases

According to liquidity preference theory,an increase in the price level causes the interest rate to

Which of the following illustrates how the investment accelerator works?

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

Filters

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?