Question 1

Which of the following shifts aggregate demand to the left?

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 2

A tax increase has

Accepted Answer

A)  a multiplier effect but not a crowding out effect 
B)  a crowding out effect but not a multiplier effect 
C)  both a crowding out and multiplier effect 
D)  neither a multiplier or crowding out effect 
A)  a multiplier effect but not a crowding out effect 
B)  a crowding out effect but not a multiplier effect 
C)  both a crowding out and multiplier effect 
D)  neither a multiplier or crowding out effect

Question 3

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Accepted Answer

A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls. 
A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls.

Question 4

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 5

If taxes

Accepted Answer

A)  increase,then consumption increases,and aggregate demand shifts rightward. 
B)  increase,then consumption decreases,and aggregate demand shifts leftward. 
C)  decrease,then consumption increases,and aggregate demand shifts leftward. 
D)  decrease,then consumption decreases,and aggregate demand shifts rightward. 
A)  increase,then consumption increases,and aggregate demand shifts rightward. 
B)  increase,then consumption decreases,and aggregate demand shifts leftward. 
C)  decrease,then consumption increases,and aggregate demand shifts leftward. 
D)  decrease,then consumption decreases,and aggregate demand shifts rightward.

Question 6

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct. 
A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct.

Question 7

Most economists believe that fiscal policy

Accepted Answer

A)  only affects aggregate demand and not aggregate supply. 
B)  primarily affects aggregate demand. 
C)  primarily effects aggregate supply. 
D)  only affects aggregate supply and not aggregate demand. 
A)  only affects aggregate demand and not aggregate supply. 
B)  primarily affects aggregate demand. 
C)  primarily effects aggregate supply. 
D)  only affects aggregate supply and not aggregate demand.

Question 8

When the Fed decreases the money supply,we expect

Accepted Answer

A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise. 
A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise.

Question 9

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 MD1 to MD2 could be a result of

Accepted Answer

A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct. 
A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct.

Question 10

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct. 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct.

Question 11

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

Accepted Answer

A)  right by more than $100 billion. 
B)  right by $100 billion. 
C)  left by more than $100 billion. 
D)  left by $100 billion. 
A)  right by more than $100 billion. 
B)  right by $100 billion. 
C)  left by more than $100 billion. 
D)  left by $100 billion.

Question 12

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 13

Other things the same,which of the following happens if the price level falls?

Accepted Answer

A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate falls. 
D)  None of the above is correct. 
A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate falls. 
D)  None of the above is correct.

Question 14

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

Accepted Answer

A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct. 
A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct.

Question 15

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Accepted Answer

A)  buy bond to raise the interest rate. 
B)  buy bonds to lower the interest rate. 
C)  sell bonds to raise the interest rate 
D)  sell bonds to raise the interest rate . 
A)  buy bond to raise the interest rate. 
B)  buy bonds to lower the interest rate. 
C)  sell bonds to raise the interest rate 
D)  sell bonds to raise the interest rate .

Question 16

According to liquidity preference theory,a decrease in the price level shifts the

Accepted Answer

A)  money demand curve rightward,so the interest rate increases. 
B)  money demand curve rightward,so the interest rate decreases. 
C)  money demand curve leftward,so the interest rate decreases. 
D)  money demand curve leftward,so the interest rate increases. 
A)  money demand curve rightward,so the interest rate increases. 
B)  money demand curve rightward,so the interest rate decreases. 
C)  money demand curve leftward,so the interest rate decreases. 
D)  money demand curve leftward,so the interest rate increases.

Question 17

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) . 
A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) .

Question 18

According to liquidity preference theory,if the price level decreases,then

Accepted Answer

A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left. 
A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left.

Question 19

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system

Question 20

Most economists believe that a cut in tax rates

Accepted Answer

A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct. 
A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct.

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

Which of the following shifts aggregate demand to the left?

A tax increase has

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

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

If taxes

Some economists argue that

Most economists believe that fiscal policy

When the Fed decreases the money supply,we expect

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 MD1 to MD2 could be a result of

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

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

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Other things the same,which of the following happens if the price level falls?

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

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

According to liquidity preference theory,a decrease in the price level shifts the

The multiplier for changes in government spending is calculated as

According to liquidity preference theory,if the price level decreases,then

Which of the following is not an automatic stabilizer?

Most economists believe that a cut in tax rates

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 MD₁ to MD₂ could be a result of