Question 1

As the interest rate falls,

Accepted Answer

A)  the quantity of money demanded falls,which would reduce a shortage. 
B)  the quantity of money demanded falls,which would reduce a surplus. 
C)  the quantity of money demanded rises,which would reduce a shortage. 
D)  the quantity of money demanded rises,which would reduce a surplus. 
A)  the quantity of money demanded falls,which would reduce a shortage. 
B)  the quantity of money demanded falls,which would reduce a surplus. 
C)  the quantity of money demanded rises,which would reduce a shortage. 
D)  the quantity of money demanded rises,which would reduce a surplus.

Question 2

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct.

Question 3

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 4

People will want to hold less money if the price level

Accepted Answer

A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 5

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)  neither the level of output nor the level of prices. 
B)  the level of output,but not in the level of prices. 
C)  the level of prices,but not in the level of output. 
D)  the level of output and in the level of prices. 
A)  neither the level of output nor the level of prices. 
B)  the level of output,but not in the level of prices. 
C)  the level of prices,but not in the level of output. 
D)  the level of output and in the level of prices.

Question 6

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 7

If the MPC = 0.85,then the government purchases multiplier is about

Accepted Answer

A)  1.18. 
B)  3.33. 
C)  6.67. 
D)  8.5. 
A)  1.18. 
B)  3.33. 
C)  6.67. 
D)  8.5.

Question 8

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is 0.75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars. 
A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars.

Question 9

Initially,the economy is in long-run equilibrium.Aggregate demand then shifts leftward by $50 billion.The government wants to increase its spending in order to avoid a recession.If the crowding-out effect is always half as strong as the multiplier effect,and if the MPC equals 0.8,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion 
A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion

Question 10

In recent years,the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate. 
A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate.

Question 11

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Accepted Answer

A)  increase and the quantity of money demanded will decrease. 
B)  increase and the quantity of money demanded will increase. 
C)  decrease and the quantity of money demanded will decrease. 
D)  decrease and the quantity of money demanded will increase. 
A)  increase and the quantity of money demanded will decrease. 
B)  increase and the quantity of money demanded will increase. 
C)  decrease and the quantity of money demanded will decrease. 
D)  decrease and the quantity of money demanded will increase.

Question 12

An increase in the price level shifts the money demand curve to the left,causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 13

If the multiplier is 5,then the MPC is

Accepted Answer

A)  0.05. 
B)  0.5. 
C)  0.6. 
D)  0.8. 
A)  0.05. 
B)  0.5. 
C)  0.6. 
D)  0.8.

Question 14

Keynes argued that

Accepted Answer

A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct. 
A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct.

Question 15

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall,Sleepwell Hotels decides to build some new hotels. 
B)  The exchange rate falls,so French restaurants in Paris buy more Iowa pork. 
C)  Janet feels wealthier because of the price-level decrease and so she decides to remodel her bathroom. 
D)  With prices down and wages fixed by contract,Millio's Frozen Pizzas decides to lay off workers. 
A)  When interest rates fall,Sleepwell Hotels decides to build some new hotels. 
B)  The exchange rate falls,so French restaurants in Paris buy more Iowa pork. 
C)  Janet feels wealthier because of the price-level decrease and so she decides to remodel her bathroom. 
D)  With prices down and wages fixed by contract,Millio's Frozen Pizzas decides to lay off workers.

Question 17

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things equal,we would expect that,in the short run,

Accepted Answer

A)  the price level and real GDP would rise,but in the long run they would both be unaffected. 
B)  the price level and real GDP would rise,but in the long run the price level would rise and real GDP would be unaffected. 
C)  the price level and real GDP would fall,but in the long run they would both be unaffected. 
D)  the price level and real GDP would fall,but in the long run the price level would fall and real GDP would be unaffected. 
A)  the price level and real GDP would rise,but in the long run they would both be unaffected. 
B)  the price level and real GDP would rise,but in the long run the price level would rise and real GDP would be unaffected. 
C)  the price level and real GDP would fall,but in the long run they would both be unaffected. 
D)  the price level and real GDP would fall,but in the long run the price level would fall and real GDP would be unaffected.

Question 18

Which among the following assets is the most liquid?

Accepted Answer

A)  capital goods 
B)  stocks and bonds with a low risk 
C)  stocks and bonds with a high risk 
D)  funds in a checking account 
A)  capital goods 
B)  stocks and bonds with a low risk 
C)  stocks and bonds with a high risk 
D)  funds in a checking account

Question 19

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)  decrease taxes 
B)  increase government expenditures 
C)  increase the money supply 
D)  None of the above is correct. 
A)  decrease taxes 
B)  increase government expenditures 
C)  increase the money supply 
D)  None of the above is correct.

Question 20

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

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

As the interest rate falls,

Which of the following shifts aggregate demand to the right?

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

People will want to hold less money if the price level

Shifts in the aggregate-demand curve can cause fluctuations in

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

If the MPC = 0.85,then the government purchases multiplier is about

In recent years,the Federal Reserve has conducted policy by setting a target for

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

An increase in the price level shifts the money demand curve to the left,causing interest rates to increase.

If the multiplier is 5,then the MPC is

Keynes argued that

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things equal,we would expect that,in the short run,

Which among the following assets is the most liquid?

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

The interest rate falls if

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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