Question 1

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases. 
A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases.

Question 2

If there is excess demand for money,then people will

Accepted Answer

A)  deposit more money into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise. 
A)  deposit more money into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise.

Question 3

Changes in the interest rate help explain

Accepted Answer

A)  only the slope of,not shifts of aggregate demand. 
B)  only shifts of,not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand. 
A)  only the slope of,not shifts of aggregate demand. 
B)  only shifts of,not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand.

Question 4

Other things equal,the higher the price level,the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 5

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises. 
A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises.

Question 6

Figure 24-6.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 24-6.Suppose the multiplier is 5 and the government increases its purchases by $10 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out.Also,suppose the horizontal distance between the curves AD1 and AD3 is $20 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)  the horizontal distance between the curves MD1 and MD2. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion. 
A)  the horizontal distance between the curves MD1 and MD2. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion.

Question 7

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies,leading to unpredictable effects on income. 
A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies,leading to unpredictable effects on income.

Question 8

Other things the same,a decrease in the U.S.interest rate

Accepted Answer

A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S.dollar appreciate. 
D)  increases the opportunity cost of holding dollars. 
A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S.dollar appreciate. 
D)  increases the opportunity cost of holding dollars.

Question 9

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system

Question 10

According to liquidity preference theory,

Accepted Answer

A)  an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand leftward. 
A)  an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand leftward.

Question 11

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory,but not classical theory. 
D)  classical theory,but not liquidity preference theory. 
A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory,but not classical theory. 
D)  classical theory,but not liquidity preference theory.

Question 12

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate. 
A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate.

Question 13

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Accepted Answer

A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect. 
A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect.

Question 14

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

When the Fed buys government bonds,the reserves of the banking system

Accepted Answer

A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases. 
A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases.

Question 16

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Figure 24-3.  
-Refer to Figure 24-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)  consumption 
B)  investment 
C)  net exports 
D)  government spending 
A)  consumption 
B)  investment 
C)  net exports 
D)  government spending

Question 20

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) . 
A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) .

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

The multiplier effect is exemplified by the multiplied impact on

If there is excess demand for money,then people will

Changes in the interest rate help explain

Other things equal,the higher the price level,the higher is the real wealth of households.

The interest rate falls if

The primary argument against active monetary and fiscal policy is that

Other things the same,a decrease in the U.S.interest rate

Which of the following is not an automatic stabilizer?

According to liquidity preference theory,

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

When the Fed buys government bonds,the reserves of the banking system

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

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?

Figure 24-3. -Refer to Figure 24-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

The multiplier for changes in government spending is calculated as

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 24-3. -Refer to Figure 24-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?