Question 1

Macroeconomic forecasts are

Accepted Answer

A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant. 
A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant.

Question 2

If taxes

Accepted Answer

A)  increase,then consumption increases,and aggregate demand shifts rightward. 
B)  increase,then consumption decreases,and aggregate demand shifts leftward. 
C)  decrease,then consumption increases,and aggregate demand shifts leftward. 
D)  decrease,then consumption decreases,and aggregate demand shifts rightward. 
A)  increase,then consumption increases,and aggregate demand shifts rightward. 
B)  increase,then consumption decreases,and aggregate demand shifts leftward. 
C)  decrease,then consumption increases,and aggregate demand shifts leftward. 
D)  decrease,then consumption decreases,and aggregate demand shifts rightward.

Question 3

If,at some interest rate,the quantity of money demanded is greater than the quantity of money supplied,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 4

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect

Question 5

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand. 
A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand.

Question 6

If the interest rate is below the Fed's target,the Fed would

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 7

Figure 24-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 24-4.Suppose the current equilibrium interest rate is r3.Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 8

Assume the MPC is 0.75.Assuming only the multiplier effect matters,a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by $200 billion. 
B)  left by $400 billion. 
C)  right by $800 billion. 
D)  None of the above is correct. 
A)  left by $200 billion. 
B)  left by $400 billion. 
C)  right by $800 billion. 
D)  None of the above is correct.

Question 9

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct.

Question 10

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 11

The Kennedy tax cut of 1964 was

Accepted Answer

A)  successful in stimulating the economy. 
B)  designed to shift the aggregate demand curve to the right. 
C)  designed to shift the aggregate supply curve to the right. 
D)  All of the above are correct. 
A)  successful in stimulating the economy. 
B)  designed to shift the aggregate demand curve to the right. 
C)  designed to shift the aggregate supply curve to the right. 
D)  All of the above are correct.

Question 12

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Accepted Answer

A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply 
A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply

Question 13

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 14

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep 
A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep

Question 15

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  As the money supply increases,the interest rate falls,so spending rises. 
B)  As the money supply increases,the interest rate rises,so spending falls. 
C)  As the price level increases,the interest rate falls,so spending rises. 
D)  As the price level increases,the interest rate rises,so spending falls. 
A)  As the money supply increases,the interest rate falls,so spending rises. 
B)  As the money supply increases,the interest rate rises,so spending falls. 
C)  As the price level increases,the interest rate falls,so spending rises. 
D)  As the price level increases,the interest rate rises,so spending falls.

Question 16

People might deposit more money into interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market. 
A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market.

Question 17

Sometimes,changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 19

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 20

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.Assume the money market is always in equilibrium,and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2.Which of the following statements is correct?

Accepted Answer

A)  When r = r2,nominal output is higher than it is when r = r1. 
B)  When r = r2,real output is higher than it is when r = r1. 
C)  When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000. 
A)  When r = r2,nominal output is higher than it is when r = r1. 
B)  When r = r2,real output is higher than it is when r = r1. 
C)  When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000.

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

Macroeconomic forecasts are

If taxes

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

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Government purchases are said to have a

If the interest rate is below the Fed's target,the Fed would

Figure 24-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-4.Suppose the current equilibrium interest rate is r3.Which of the following events would cause the equilibrium interest rate to decrease?

Assume the MPC is 0.75.Assuming only the multiplier effect matters,a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

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.

The Kennedy tax cut of 1964 was

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

People might deposit more money into interest-bearing accounts,

Sometimes,changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

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

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

Figure 24-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-4.Suppose the current equilibrium interest rate is r₃.Which of the following events would cause the equilibrium interest rate to decrease?