Question 1

When the Fed buys government bonds,the reserves of the banking system

Accepted Answer

A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases. 
A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases.

Question 2

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)  increasing the money supply,which raises interest rates. 
B)  increasing the money supply,which lowers interest rates. 
C)  decreasing the money supply,which raises interest rates. 
D)  decreasing the money supply,which lowers interest rates. 
A)  increasing the money supply,which raises interest rates. 
B)  increasing the money supply,which lowers interest rates. 
C)  decreasing the money supply,which raises interest rates. 
D)  decreasing the money supply,which lowers interest rates.

Question 3

If the Fed conducts open-market sales,the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 4

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.Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation 
A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation

Question 5

An increase in the MPC

Accepted Answer

A)  increases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
A)  increases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier,so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier,so that changes in government expenditures have a smaller effect on aggregate demand.

Question 6

An increase in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases. 
A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases.

Question 7

Other things the same,which of the following responses would we expect to result from an decrease in U.S.interest rates?

Accepted Answer

A)  U.S.citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S.citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 8

During recessions,unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 9

The logic of the multiplier effect applies

Accepted Answer

A)  only to changes in government spending. 
B)  to any change in spending on any component of GDP. 
C)  only to changes in the money supply. 
D)  only when the crowding-out effect is sufficiently strong. 
A)  only to changes in government spending. 
B)  to any change in spending on any component of GDP. 
C)  only to changes in the money supply. 
D)  only when the crowding-out effect is sufficiently strong.

Question 10

If the stock market booms,then

Accepted Answer

A)  aggregate demand increases,which the Fed could offset by increasing the money supply. 
B)  aggregate supply increases,which the Fed could offset by increasing the money supply. 
C)  aggregate demand increases,which the Fed could offset by decreasing the money supply. 
D)  aggregate supply increases,which the Fed could offset by decreasing the money supply. 
A)  aggregate demand increases,which the Fed could offset by increasing the money supply. 
B)  aggregate supply increases,which the Fed could offset by increasing the money supply. 
C)  aggregate demand increases,which the Fed could offset by decreasing the money supply. 
D)  aggregate supply increases,which the Fed could offset by decreasing the money supply.

Question 11

Scenario 34-1.Take the following information as given for a small,imaginary economy:
• When income is $10,000,consumption spending is $6,500.
• When income is $11,000,consumption spending is $7,300.
-Refer to Scenario 34-1.The multiplier for this economy is

Accepted Answer

A)  2.86. 
B)  2.98. 
C)  4.00. 
D)  5.00. 
A)  2.86. 
B)  2.98. 
C)  4.00. 
D)  5.00.

Question 12

According to liquidity preference theory,equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth. 
A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth.

Question 13

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

A)  $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand. 
B)  $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand. 
C)  $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand. 
D)  $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand. 
A)  $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand. 
B)  $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand. 
C)  $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand. 
D)  $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand.

Question 14

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Accepted Answer

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

Question 15

If the Federal Reserve decided to lower interest rates,it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 16

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate

Question 17

If there is excess money supply,people will

Accepted Answer

A)  deposit more into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise. 
A)  deposit more into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise.

Question 18

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)  The price level rises,causing the interest rate to fall. 
B)  The price level falls,causing the interest rate to fall. 
C)  The money supply increases,causing the interest rate to fall. 
D)  The money supply decreases,causing the interest rate to fall. 
A)  The price level rises,causing the interest rate to fall. 
B)  The price level falls,causing the interest rate to fall. 
C)  The money supply increases,causing the interest rate to fall. 
D)  The money supply decreases,causing the interest rate to fall.

Question 19

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills. 
A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills.

Question 20

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand;higher money demand leads to higher interest rates;a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand;higher money demand leads to lower interest rates;a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand;higher money demand leads to higher interest rates;a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand;higher money demand leads to lower interest rates;a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate increases the quantity of goods and services demanded.

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

When the Fed buys government bonds,the reserves of the banking system

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

If the Fed conducts open-market sales,the money supply

An increase in the MPC

An increase in government spending

Other things the same,which of the following responses would we expect to result from an decrease in U.S.interest rates?

During recessions,unemployment insurance payments tend to rise.

The logic of the multiplier effect applies

If the stock market booms,then

Scenario 34-1.Take the following information as given for a small,imaginary economy: • When income is $10,000,consumption spending is $6,500. • When income is $11,000,consumption spending is $7,300. -Refer to Scenario 34-1.The multiplier for this economy is

According to liquidity preference theory,equilibrium in the money market is achieved by adjustments in

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

If the Federal Reserve decided to lower interest rates,it could

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

If there is excess money supply,people will

In which of the following cases does the aggregate-demand curve shift to the right?

The Federal Funds rate is the interest rate

Which of the following properly describes the interest-rate effect?

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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