Question 1

If expected inflation is constant and the nominal interest rate increases by 2 percentage points,then the real interest rate

Accepted Answer

A)  increases by 2 percentage points. 
B)  increases,but by less than 2 percentage points. 
C)  decreases,but by less than 2 percentage points. 
D)  decreases by 2 percentage points. 
A)  increases by 2 percentage points. 
B)  increases,but by less than 2 percentage points. 
C)  decreases,but by less than 2 percentage points. 
D)  decreases by 2 percentage points.

Question 2

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Accepted Answer

A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply. 
A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply.

Question 3

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand. 
A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand.

Question 4

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases. 
A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases.

Question 5

During periods of expansion,automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise. 
A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise.

Question 6

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

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 7

For the following questions,use the diagram below:
Figure 34-6.  
-Refer to Figure 34-6.Which of the following is correct?

Accepted Answer

A)  A wave of optimism could move the economy from point a to point 
B)  If aggregate demand moves from AD1 to AD2,the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct. 
A)  A wave of optimism could move the economy from point a to point 
B)  If aggregate demand moves from AD1 to AD2,the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct.

Question 8

The positive feedback from aggregate demand to investment is called

Accepted Answer

A)  the investment multiplier. 
B)  the stock-market effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier. 
A)  the investment multiplier. 
B)  the stock-market effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier.

Question 9

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 10

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

Accepted Answer

A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect. 
A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect.

Question 11

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  As the money supply increases,the interest rate falls,so spending rises. 
B)  As the money supply increases,the interest rate rises,so spending falls. 
C)  As the price level increases,the interest rate falls,so spending rises. 
D)  As the price level increases,the interest rate rises,so spending falls. 
A)  As the money supply increases,the interest rate falls,so spending rises. 
B)  As the money supply increases,the interest rate rises,so spending falls. 
C)  As the price level increases,the interest rate falls,so spending rises. 
D)  As the price level increases,the interest rate rises,so spending falls.

Question 12

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  None of the above is correct. 
A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  None of the above is correct.

Question 13

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate. 
A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate.

Question 14

If households view a tax cut as temporary,then the tax cut

Accepted Answer

A)  has no affect on aggregate demand. 
B)  has more of an affect on aggregate demand than if households view it as permanent. 
C)  has the same affect as when households view the cut as permanent. 
D)  has less of an affect on aggregate demand than if households view it as permanent. 
A)  has no affect on aggregate demand. 
B)  has more of an affect on aggregate demand than if households view it as permanent. 
C)  has the same affect as when households view the cut as permanent. 
D)  has less of an affect on aggregate demand than if households view it as permanent.

Question 15

According to the theory of liquidity preference,an increase in the price level causes the

Accepted Answer

A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise. 
A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise.

Question 16

Assume the MPC is 0.625.Assuming only the multiplier effect matters,a decrease in government purchases of $10 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by about $13.3 billion. 
B)  left by about $26.7 billion. 
C)  right by about $36.7 billion. 
D)  None of the above is correct. 
A)  left by about $13.3 billion. 
B)  left by about $26.7 billion. 
C)  right by about $36.7 billion. 
D)  None of the above is correct.

Question 17

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

Accepted Answer

A) True 
 B)False

Question 18

Figure 34-4.On the figure,MS represents money supply and MD represents money
demand.  
-Refer to Figure 34-4.What is measured along the vertical axis of the graph?

Accepted Answer

A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level 
A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level

Question 19

A decrease in the interest rate could have been caused by the money-demand curve shifting

Accepted Answer

A)  leftward because the price level fell. 
B)  leftward because the price level rose 
C)  rightward because the price level fell. 
D)  rightward because the price level rose. 
A)  leftward because the price level fell. 
B)  leftward because the price level rose 
C)  rightward because the price level fell. 
D)  rightward because the price level rose.

Question 20

Which among the following assets is the most liquid?

Accepted Answer

A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  mutual funds 
A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  mutual funds

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

If expected inflation is constant and the nominal interest rate increases by 2 percentage points,then the real interest rate

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Government purchases are said to have a

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

During periods of expansion,automatic stabilizers cause government expenditures

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

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.Which of the following is correct?

The positive feedback from aggregate demand to investment is called

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

If households view a tax cut as temporary,then the tax cut

According to the theory of liquidity preference,an increase in the price level causes the

Assume the MPC is 0.625.Assuming only the multiplier effect matters,a decrease in government purchases of $10 billion will shift the aggregate demand curve to the

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.What is measured along the vertical axis of the graph?

A decrease in the interest rate could have been caused by the money-demand curve shifting

Which among the following assets is the most liquid?

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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