Question 1

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)  president George W.Bush 
B)  president John F.Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin 
A)  president George W.Bush 
B)  president John F.Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin

Question 2

In the short run,an increase in government expenditures

Accepted Answer

A)  raises the price level,but not real GDP. 
B)  raises real GDP,but not the price level. 
C)  raises real GDP and the price level. 
D)  raises neither real GDP nor the price level. 
A)  raises the price level,but not real GDP. 
B)  raises real GDP,but not the price level. 
C)  raises real GDP and the price level. 
D)  raises neither real GDP nor the price level.

Question 3

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  decrease the money supply 
B)  increase government expenditures 
C)  increase taxes 
D)  All of the above are correct. 
A)  decrease the money supply 
B)  increase government expenditures 
C)  increase taxes 
D)  All of the above are correct.

Question 4

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct. 
A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct.

Question 5

An increase in government purchases is likely to

Accepted Answer

A)  decrease interest rates. 
B)  result in a net decrease in aggregate demand. 
C)  crowd out investment spending by business firms. 
D)  decrease money demand. 
A)  decrease interest rates. 
B)  result in a net decrease in aggregate demand. 
C)  crowd out investment spending by business firms. 
D)  decrease money demand.

Question 6

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Accepted Answer

A)  rises and the aggregate quantity of goods demanded rises. 
B)  rises and the aggregate quantity of goods demanded falls. 
C)  falls and the aggregate quantity of goods demanded rises. 
D)  falls and the aggregate quantity of goods demanded falls. 
A)  rises and the aggregate quantity of goods demanded rises. 
B)  rises and the aggregate quantity of goods demanded falls. 
C)  falls and the aggregate quantity of goods demanded rises. 
D)  falls and the aggregate quantity of goods demanded falls.

Question 7

In the long run,fiscal policy influences

Accepted Answer

A)  saving,investment,and growth;in the short run,fiscal policy primarily influences technology and the production function. 
B)  saving,investment,and growth;in the short run,fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function;in the short run,fiscal policy primarily influences saving,investment,and growth. 
D)  the aggregate demand for goods and services;in the short run,fiscal policy primarily influences technology and the production function. 
A)  saving,investment,and growth;in the short run,fiscal policy primarily influences technology and the production function. 
B)  saving,investment,and growth;in the short run,fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function;in the short run,fiscal policy primarily influences saving,investment,and growth. 
D)  the aggregate demand for goods and services;in the short run,fiscal policy primarily influences technology and the production function.

Question 8

Critics of stabilization policy argue that

Accepted Answer

A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of,instead of a cure for,economic fluctuations. 
D)  All of the above are correct. 
A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of,instead of a cure for,economic fluctuations. 
D)  All of the above are correct.

Question 9

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 10

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Accepted Answer

A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00. 
A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00.

Question 11

The wealth effect stems from the idea that a higher price level

Accepted Answer

A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets. 
A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets.

Question 12

Liquidity refers to

Accepted Answer

A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate. 
A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate.

Question 13

The lag problem associated with monetary 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 determining monetary policy. 
C)  the time it takes for changes in government spending 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 determining monetary policy. 
C)  the time it takes for changes in government spending to affect the interest rate. 
D)  All of the above are correct.

Question 14

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures,but not a change in the price level 
D)  a decrease in the price level,but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures,but not a change in the price level 
D)  a decrease in the price level,but not an increase in government expenditures

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

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

In the short run,an increase in government expenditures

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

It is likely that a constitutional amendment that required the government always to run a balanced budget would

An increase in government purchases is likely to

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

In the long run,fiscal policy influences

Critics of stabilization policy argue that

How does a reduction in the money supply by the Fed make owning stocks less attractive?

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

The wealth effect stems from the idea that a higher price level

Liquidity refers to

The lag problem associated with monetary policy is due mostly to

Which of the following events shifts aggregate demand rightward?

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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