Question 1

People might deposit more money into interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market. 
A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market.

Question 2

When the government reduces taxes,which of the following decreases?

Accepted Answer

A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct. 
A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct.

Question 3

Figure 34-5.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 34-5.Suppose the graphs are drawn to show the effects of an increase in government purchases.If it were not for the increase in r from r1 to r2,then

Accepted Answer

A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct. 
A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct.

Question 4

If the multiplier is 2.5,then the MPC is

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  1.00. 
A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  1.00.

Question 5

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement 
A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement

Question 6

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory. 
A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory.

Question 7

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

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 8

If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion. 
B)  increase by $175 billion. 
C)  increase by $350 billion. 
D)  None of the above are correct. 
A)  increase by $250 billion. 
B)  increase by $175 billion. 
C)  increase by $350 billion. 
D)  None of the above are correct.

Question 9

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 10

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income. 
A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income.

Question 11

In the short run,a decrease in the money supply causes interest rates to

Accepted Answer

A)  increase,and aggregate demand to shift right. 
B)  increase,and aggregate demand to shift left. 
C)  decrease,and aggregate demand to shift right. 
D)  decrease,and aggregate demand to shift left. 
A)  increase,and aggregate demand to shift right. 
B)  increase,and aggregate demand to shift left. 
C)  decrease,and aggregate demand to shift right. 
D)  decrease,and aggregate demand to shift left.

Question 12

An increase in the U.S.interest rate

Accepted Answer

A)  reduces the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to an appreciation of the U.S.dollar. 
A)  reduces the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to an appreciation of the U.S.dollar.

Question 13

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)  always decrease government tax revenue. 
B)  shifts the aggregate supply curve to the right. 
C)  provides no incentive for people to work more. 
D)  would decrease consumption. 
A)  always decrease government tax revenue. 
B)  shifts the aggregate supply curve to the right. 
C)  provides no incentive for people to work more. 
D)  would decrease consumption.

Question 14

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 15

In the short run,open-market sales

Accepted Answer

A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP. 
A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP.

Question 16

During recessions,automatic stabilizers tend to make the government's budget

Accepted Answer

A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction. 
A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction.

Question 17

When the interest rate increases,the opportunity cost of holding money

Accepted Answer

A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases. 
A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases.

Question 18

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 19

Suppose there are both multiplier and crowding out effects but without any accelerator effects.An increase in government expenditures would definitely

Accepted Answer

A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as an the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible. 
A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as an the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible.

Question 20

Other things the same,automatic stabilizers tend to

Accepted Answer

A)  raise expenditures during expansions and recessions. 
B)  lower expenditures during expansions and recessions. 
C)  raise expenditures during recessions and lower expenditures during expansions. 
D)  raise expenditures during expansions and lower expenditures during recessions. 
A)  raise expenditures during expansions and recessions. 
B)  lower expenditures during expansions and recessions. 
C)  raise expenditures during recessions and lower expenditures during expansions. 
D)  raise expenditures during expansions and lower expenditures during recessions.

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

People might deposit more money into interest-bearing accounts,

When the government reduces taxes,which of the following decreases?

If the multiplier is 2.5,then the MPC is

Which of the following Fed actions would both increase the money supply?

The theory of liquidity preference is most helpful in understanding

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

If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to

Opponents of active stabilization policy

Liquidity preference refers directly to Keynes' theory concerning

In the short run,a decrease in the money supply causes interest rates to

An increase in the U.S.interest rate

Supply-side economists believe that a reduction in the tax rate

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

In the short run,open-market sales

During recessions,automatic stabilizers tend to make the government's budget

When the interest rate increases,the opportunity cost of holding money

Macroeconomic forecasts are

Suppose there are both multiplier and crowding out effects but without any accelerator effects.An increase in government expenditures would definitely

Other things the same,automatic stabilizers tend to

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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