Question 1

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 2

Other things equal,in the short run a higher price level leads households to

Accepted Answer

A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods. 
A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods.

Question 3

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

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct. 
A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct.

Question 5

If the stock market crashes,then

Accepted Answer

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

Question 6

According to liquidity preference theory,the money-supply curve is

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 7

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect. 
A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect.

Question 8

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Question 9

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
D)  is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
D)  is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.

Question 10

Scenario 34-1.Take the following information as given for a small,imaginary economy:
• When income is $10,000,consumption spending is $6,500.
• When income is $11,000,consumption spending is $7,300.
-Refer to Scenario 34-1.The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800. 
A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800.

Question 11

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Accepted Answer

A)  Your aunt puts more money in her savings account. 
B)  Foreign citizens decide to buy fewer U.S.bonds. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  Your aunt puts more money in her savings account. 
B)  Foreign citizens decide to buy fewer U.S.bonds. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 13

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory,but not classical theory. 
D)  classical theory,but not liquidity preference theory. 
A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory,but not classical theory. 
D)  classical theory,but not liquidity preference theory.

Question 14

In principle,the government could increase the money supply or increase 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

Question 15

The Employment Act of 1946

Accepted Answer

A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book,The General Theory of Employment,Interest,and Money. 
D)  All of the above are correct 
A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book,The General Theory of Employment,Interest,and Money. 
D)  All of the above are correct

Question 16

Liquidity preference theory is most relevant to the

Accepted Answer

A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Question 17

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 18

If the inflation rate is zero,then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Figure 34-3.  
-Refer to Figure 34-3.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

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

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

Other things equal,in the short run a higher price level leads households to

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

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

If the stock market crashes,then

According to liquidity preference theory,the money-supply curve is

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Fiscal policy affects the economy

The interest-rate effect

Scenario 34-1.Take the following information as given for a small,imaginary economy: • When income is $10,000,consumption spending is $6,500. • When income is $11,000,consumption spending is $7,300. -Refer to Scenario 34-1.The marginal propensity to consume for this economy is

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

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

The Employment Act of 1946

Liquidity preference theory is most relevant to the

Which of the following events would shift money demand to the right?

If the inflation rate is zero,then the nominal and real interest rate are the same.

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

Figure 34-3. -Refer to Figure 34-3.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?

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 34-3. -Refer to Figure 34-3.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?