Question 1

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

Supply-side economists focus more than other economists on

Accepted Answer

A)  how fiscal policy affects consumption. 
B)  the multiplier affect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply. 
A)  how fiscal policy affects consumption. 
B)  the multiplier affect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply.

Question 3

The marginal propensity to consume (MPC)is defined as the fraction of

Accepted Answer

A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves. 
A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves.

Question 4

If the Fed conducts open-market sales,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)  interest rates and investment,but not prices 
D)  interest rates,but not investment or prices 
A)  interest rates,prices,and investment spending 
B)  interest rates and prices,but not investment spending 
C)  interest rates and investment,but not prices 
D)  interest rates,but not investment or prices

Question 5

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion. 
A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion.

Question 6

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Accepted Answer

A)  0.75 and the multiplier is 1 1/3. 
B)  0.75 and the multiplier is 4. 
C)  0.25 and the multiplier is 1 1/3. 
D)  0.25 and the multiplier is 4. 
A)  0.75 and the multiplier is 1 1/3. 
B)  0.75 and the multiplier is 4. 
C)  0.25 and the multiplier is 1 1/3. 
D)  0.25 and the multiplier is 4.

Question 7

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. 
B)  depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. 
C)  is responsible for the downward slope of the money-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 decrease the quantity of goods and services demanded. 
B)  depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. 
C)  is responsible for the downward slope of the money-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 8

Figure 34-1  
-Refer to Figure 34-1.There is an excess demand for money at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 9

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 10

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect 
A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect

Question 11

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 12

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

Accepted Answer

A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion 
A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion

Question 13

Which of the following shifts aggregate demand to the right?

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 14

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall,so aggregate demand shifts right. 
B)  the interest rate to fall,so aggregate demand shifts left. 
C)  the interest rate to rise,so aggregate demand shifts right. 
D)  the interest rate to rise,so aggregate demand shifts left. 
A)  the interest rate to fall,so aggregate demand shifts right. 
B)  the interest rate to fall,so aggregate demand shifts left. 
C)  the interest rate to rise,so aggregate demand shifts right. 
D)  the interest rate to rise,so aggregate demand shifts left.

Question 15

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 16

In the long run,the level of output

Accepted Answer

A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct. 
A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct.

Question 17

Suppose the MPC is 0.75.There are no crowding out or investment accelerator effects.If the government increases its expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $800 billion and $800 billion 
B)  $800 billion and $600 billion 
C)  $600 billion and $600 billion 
D)  $600 billion and $450 billion 
A)  $800 billion and $800 billion 
B)  $800 billion and $600 billion 
C)  $600 billion and $600 billion 
D)  $600 billion and $450 billion

Question 18

According to John Maynard Keynes,

Accepted Answer

A)  the demand for money in a country is determined entirely by that nation's central bank. 
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country. 
C)  the interest rate adjusts to balance the supply of,and demand for,money. 
D)  the interest rate adjusts to balance the supply of,and demand for,goods and services. 
A)  the demand for money in a country is determined entirely by that nation's central bank. 
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country. 
C)  the interest rate adjusts to balance the supply of,and demand for,money. 
D)  the interest rate adjusts to balance the supply of,and demand for,goods and services.

Question 19

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Accepted Answer

A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates. 
A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.

Question 20

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts. 
A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts.

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

An increase in the money supply shifts the aggregate-supply curve to the right.

Supply-side economists focus more than other economists on

The marginal propensity to consume (MPC)is defined as the fraction of

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

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

The interest-rate effect

Figure 34-1 -Refer to Figure 34-1.There is an excess demand for money at an interest rate of

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

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Supply-side economists believe that changes in government purchases affect

Which of the following shifts aggregate demand to the right?

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

In the long run,the level of output

According to John Maynard Keynes,

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Permanent tax cuts shift the AD curve

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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