Question 1

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls,people need l

Question 2

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 3

If the multiplier is 6.25,then the MPC is

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  0.84. 
A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  0.84.

Question 4

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 5

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 6

Assume that there is no accelerator affect.The MPC = 3/4.The government increases both expenditures and taxes by $600.The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone.The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand.How much does aggregate demand shift by?

Accepted Answer

A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct. 
A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct.

Question 7

Figure 24-2.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 24-2.What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money 
A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money

Question 8

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent. 
A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent.

Question 9

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

Accepted Answer

A)  sell interest-bearing assets,causing the interest rate to decrease. 
B)  sell interest-bearing assets,causing the interest rate to increase. 
C)  buy interest-bearing assets,causing the interest rate to decrease. 
D)  buy interest-bearing assets,causing the interest rate to increase. 
A)  sell interest-bearing assets,causing the interest rate to decrease. 
B)  sell interest-bearing assets,causing the interest rate to increase. 
C)  buy interest-bearing assets,causing the interest rate to decrease. 
D)  buy interest-bearing assets,causing the interest rate to increase.

Question 10

When the government reduces taxes,which of the following decreases?

Accepted Answer

A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct. 
A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct.

Question 11

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Accepted Answer

A)  operating at full capacity. 
B)  in recession. 
C)  experiencing zero inflation. 
D)  experiencing high rates of inflation. 
A)  operating at full capacity. 
B)  in recession. 
C)  experiencing zero inflation. 
D)  experiencing high rates of inflation.

Question 12

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Accepted Answer

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

Question 13

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Accepted Answer

A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts. 
A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts.

Question 14

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Assume the MPC is 0.80.The multiplier is

Accepted Answer

A)  0.80. 
B)  1.25. 
C)  4.25. 
D)  5.00. 
A)  0.80. 
B)  1.25. 
C)  4.25. 
D)  5.00.

Question 17

In response to the sharp decline in stock prices in October 1987,the Federal Reserve

Accepted Answer

A)  increased the money supply and increased interest rates. 
B)  increased the money supply and decreased interest rates. 
C)  decreased the money supply and increased interest rates. 
D)  decreased the money supply and decreased interest rates. 
A)  increased the money supply and increased interest rates. 
B)  increased the money supply and decreased interest rates. 
C)  decreased the money supply and increased interest rates. 
D)  decreased the money supply and decreased interest rates.

Question 18

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D)  All of the above are correct. 
A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right,but this effect is likely more important in the long run. 
D)  All of the above are correct.

Question 19

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate. 
A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.

Question 20

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)  $60 billion,but the effect would be larger if there were an investment accelerator. 
B)  $60 billion,but the effect would be smaller if there were an investment accelerator. 
C)  $120 billion,but the effect would be larger if there were an investment accelerator. 
D)  $120 billion,but the effect would be smaller if there were an investment accelerator. 
A)  $60 billion,but the effect would be larger if there were an investment accelerator. 
B)  $60 billion,but the effect would be smaller if there were an investment accelerator. 
C)  $120 billion,but the effect would be larger if there were an investment accelerator. 
D)  $120 billion,but the effect would be smaller if there were an investment accelerator.

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

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

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

If the multiplier is 6.25,then the MPC is

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

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

When the government reduces taxes,which of the following decreases?

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

An increase in government spending

Assume the MPC is 0.80.The multiplier is

In response to the sharp decline in stock prices in October 1987,the Federal Reserve

An increase in government spending on goods to build or repair infrastructure

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve 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