Question 1

When the price level falls,the interest rate

Accepted Answer

A)  rises.When the money supply falls,the interest rate rises. 
B)  rises.When the money supply falls,the interest rate falls. 
C)  falls.When the money supply falls,the interest rate rises. 
D)  falls.When the money supply falls,the interest rate falls. 
A)  rises.When the money supply falls,the interest rate rises. 
B)  rises.When the money supply falls,the interest rate falls. 
C)  falls.When the money supply falls,the interest rate rises. 
D)  falls.When the money supply falls,the interest rate falls.

Question 2

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 3

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 4

If the stock market booms,then

Accepted Answer

A)  household spending increases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply. 
B)  household spending increases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply. 
C)  household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply. 
D)  household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply. 
A)  household spending increases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply. 
B)  household spending increases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply. 
C)  household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply. 
D)  household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply.

Question 5

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect

Question 6

Figure 34-2.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 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A)  the quantity of goods and services demanded is higher at P2 than it is at P1. 
B)  the quantity of money is higher at Y1 than it is at Y2. 
C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D)  All of the above are correct. 
A)  the quantity of goods and services demanded is higher at P2 than it is at P1. 
B)  the quantity of money is higher at Y1 than it is at Y2. 
C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D)  All of the above are correct.

Question 7

According to liquidity preference theory,a decrease in the price level causes the interest rate to

Accepted Answer

A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded. 
A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded.

Question 8

If the interest rate is above the Fed's target,the Fed should

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 9

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand,but changes in the money supply do not. 
A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand,but changes in the money supply do not.

Question 10

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand. 
A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand.

Question 11

According to liquidity preference theory,

Accepted Answer

A)  an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand leftward. 
A)  an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand leftward.

Question 12

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect,exchange-rate effect,interest-rate effect 
B)  exchange-rate effect,interest-rate effect,wealth effect 
C)  interest-rate effect,wealth effect,exchange-rate effect 
D)  interest-rate effect,exchange-rate effect,wealth effect 
A)  wealth effect,exchange-rate effect,interest-rate effect 
B)  exchange-rate effect,interest-rate effect,wealth effect 
C)  interest-rate effect,wealth effect,exchange-rate effect 
D)  interest-rate effect,exchange-rate effect,wealth effect

Question 13

Figure 34-2.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 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A)  the real interest rate is higher at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is higher at r2 than it is at r1. 
D)  All of the above are correct. 
A)  the real interest rate is higher at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is higher at r2 than it is at r1. 
D)  All of the above are correct.

Question 14

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

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 15

In the graph of the money market,the money supply curve is

Accepted Answer

A)  vertical.It shifts rightward if the Fed buys bonds. 
B)  vertical.It shifts rightward if the Fed sells bonds. 
C)  upward sloping.It shifts rightward if the Fed buys bonds. 
D)  upward sloping.It shifts rightward if the Fed sells bonds. 
A)  vertical.It shifts rightward if the Fed buys bonds. 
B)  vertical.It shifts rightward if the Fed sells bonds. 
C)  upward sloping.It shifts rightward if the Fed buys bonds. 
D)  upward sloping.It shifts rightward if the Fed sells bonds.

Question 16

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 multiplier is 3 and the government increases its purchases by $25 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $30 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)  $25 billion. 
B)  $30 billion. 
C)  $45 billion. 
D)  $60 billion. 
A)  $25 billion. 
B)  $30 billion. 
C)  $45 billion. 
D)  $60 billion.

Question 17

Figure 34-3.  
-Refer to Figure 34-3.What quantity is represented by the vertical line on the left-hand graph?

Accepted Answer

A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  the quantity of bonds that was most recently sold or purchased by the Federal Reserve 
A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  the quantity of bonds that was most recently sold or purchased by the Federal Reserve

Question 18

According to the liquidity preference theory,an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate,which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate,which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged. 
A)  increases the equilibrium interest rate,which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate,which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged.

Question 19

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)  interest rate 
B)  money supply 
C)  quantity of output 
D)  price level 
A)  interest rate 
B)  money supply 
C)  quantity of output 
D)  price level

Question 20

A tax cut shifts aggregate demand

Accepted Answer

A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct. 
A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct.

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

When the price level falls,the interest rate

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

If the stock market booms,then

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

According to liquidity preference theory,a decrease in the price level causes the interest rate to

If the interest rate is above the Fed's target,the Fed should

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

According to liquidity preference theory,

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

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

In the graph of the money market,the money supply curve is

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the vertical line on the left-hand graph?

According to the liquidity preference theory,an increase in the overall price level of 10 percent

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

A tax cut shifts aggregate demand

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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