Question 1

When the Fed lowers the growth rate of the money supply,it must take into account

Accepted Answer

A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production. 
A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production.

Question 2

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels.

Question 3

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5. 
A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5.

Question 4

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 5

Scenario 24-1.Take the following information as given for a small,imaginary economy:
  
-Refer to Scenario 24-1.The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800. 
A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800.

Question 6

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

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates.

Question 7

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 8

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Accepted Answer

A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply 
A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply

Question 9

In the long run,fiscal policy primarily affects

Accepted Answer

A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply. 
A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply.

Question 10

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 11

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Accepted Answer

A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct. 
A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct.

Question 12

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 13

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect 
A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect

Question 14

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

Accepted Answer

A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion. 
A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion.

Question 15

If the Fed increases the money supply,

Accepted Answer

A)  the interest rate increases,which tends to raise stock prices. 
B)  the interest rate increases,which tends to reduce stock prices. 
C)  the interest rate decreases,which tends to raise stock prices. 
D)  the interest rate decreases,which tends to reduce stock prices. 
A)  the interest rate increases,which tends to raise stock prices. 
B)  the interest rate increases,which tends to reduce stock prices. 
C)  the interest rate decreases,which tends to raise stock prices. 
D)  the interest rate decreases,which tends to reduce stock prices.

Question 16

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 17

The most important automatic stabilizer is

Accepted Answer

A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits. 
A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits.

Question 18

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 19

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 20

If the MPC is 0.75 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)  $80 billion. 
B)  $125 billion. 
C)  $400 billion. 
D)  $500 billion. 
A)  $80 billion. 
B)  $125 billion. 
C)  $400 billion. 
D)  $500 billion.

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

When the Fed lowers the growth rate of the money supply,it must take into account

Which of the following illustrates how the investment accelerator works?

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

During periods of expansion,automatic stabilizers cause government expenditures

Scenario 24-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 24-1.The marginal propensity to consume for this economy is

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

Shifts in the aggregate-demand curve can cause fluctuations in

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

In the long run,fiscal policy primarily affects

The logic of the multiplier effect applies

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect,but no crowding out and no investment accelerator,then

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

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

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

If the Fed increases the money supply,

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

The most important automatic stabilizer is

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?

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

If the MPC is 0.75 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

Filters