Question 1

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct. 
A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct.

Question 2

The short-run effects on the interest rate are

Accepted Answer

A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory. 
A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory.

Question 3

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct. 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct.

Question 4

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

Accepted Answer

A)  Keynesian in nature,and that her view is more valid for the long run than for the short run. 
B)  classical in nature,and that her view is more valid for the long run than for the short run. 
C)  Keynesian in nature,and that her view is more valid for the short run than for the long run. 
D)  classical in nature,and that her view is more valid for the short run than for the long run. 
A)  Keynesian in nature,and that her view is more valid for the long run than for the short run. 
B)  classical in nature,and that her view is more valid for the long run than for the short run. 
C)  Keynesian in nature,and that her view is more valid for the short run than for the long run. 
D)  classical in nature,and that her view is more valid for the short run than for the long run.

Question 5

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  decrease the money supply 
B)  increase government expenditures 
C)  increase taxes 
D)  All of the above are correct. 
A)  decrease the money supply 
B)  increase government expenditures 
C)  increase taxes 
D)  All of the above are correct.

Question 6

Figure 24-1  
-Refer to Figure 24-1.Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B)  If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B)  If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

Question 7

In the short run,

Accepted Answer

A)  the price level alone adjusts to balance the supply and demand for money. 
B)  output responds to changes in the aggregate demand for goods and services. 
C)  changes in the money supply cause a proportional change in the price level. 
D)  increases in the money supply shift the aggregate supply curve causing output to rise. 
A)  the price level alone adjusts to balance the supply and demand for money. 
B)  output responds to changes in the aggregate demand for goods and services. 
C)  changes in the money supply cause a proportional change in the price level. 
D)  increases in the money supply shift the aggregate supply curve causing output to rise.

Question 8

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 9

When the interest rate decreases,the opportunity cost of holding money

Accepted Answer

A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases. 
A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases.

Question 10

Figure 24-1  
-Refer to Figure 24-1.There is an excess demand for money at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 11

For the U.S.economy,money holdings are a

Accepted Answer

A)  large part of household wealth,and so the interest-rate effect is large. 
B)  large part of household wealth,and so the wealth effect is large. 
C)  small part of household wealth,and so the interest-rate effect is small. 
D)  small part of household wealth,and so the wealth effect is small. 
A)  large part of household wealth,and so the interest-rate effect is large. 
B)  large part of household wealth,and so the wealth effect is large. 
C)  small part of household wealth,and so the interest-rate effect is small. 
D)  small part of household wealth,and so the wealth effect is small.

Question 12

Other things the same,an increase in taxes shifts aggregate demand to the left.In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

For the following questions,use the diagram below:
Figure 24-7.  
-Refer to Figure 24-7.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level. 
A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level.

Question 15

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

Accepted Answer

A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate. 
A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate.

Question 16

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)  only aggregate demand. 
B)  only aggregate supply. 
C)  both aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply. 
A)  only aggregate demand. 
B)  only aggregate supply. 
C)  both aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply.

Question 17

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 18

Tax cuts

Accepted Answer

A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right. 
A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right.

Question 19

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points,then the real interest rate

Accepted Answer

A)  increases by 3.5 percentage points. 
B)  increases,but by less than 3.5 percentage points. 
C)  decreases,but by less than 3.5 percentage points. 
D)  decreases by 3.5 percentage points. 
A)  increases by 3.5 percentage points. 
B)  increases,but by less than 3.5 percentage points. 
C)  decreases,but by less than 3.5 percentage points. 
D)  decreases by 3.5 percentage points.

Question 20

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls,unemployment rises.More

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

Some economists argue that

The short-run effects on the interest rate are

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Figure 24-1 -Refer to Figure 24-1.Which of the following is correct?

In the short run,

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

When the interest rate decreases,the opportunity cost of holding money

Figure 24-1 -Refer to Figure 24-1.There is an excess demand for money at an interest rate of

For the U.S.economy,money holdings are a

Other things the same,an increase in taxes shifts aggregate demand to the left.In the short run this makes output fall which makes the interest rate rise.

A tax cut shifts aggregate demand

For the following questions,use the diagram below: Figure 24-7. -Refer to Figure 24-7.The aggregate-demand curve could shift from AD1 to AD2 as a result of

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

Supply-side economists believe that changes in government purchases affect

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

Tax cuts

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points,then the real interest rate

Explain how unemployment insurance acts as an automatic stabilizer.

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

For the following questions,use the diagram below: Figure 24-7. -Refer to Figure 24-7.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of