Question 1

Which statement do opponents of active stabilization policy believe?

Accepted Answer

A)  A monetary policy designed to offset changes in the unemployment rate is effective. 
B)  Fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  The political process creates lags in the implementation of fiscal policy. 
D)  Fluctuations would not exist in the absence of fiscal policies. 
A)  A monetary policy designed to offset changes in the unemployment rate is effective. 
B)  Fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  The political process creates lags in the implementation of fiscal policy. 
D)  Fluctuations would not exist in the absence of fiscal policies.

Question 2

According to liquidity-preference theory,why is the money-demand curve downward sloping?

Accepted Answer

A)  because interest rates rise as the Bank of Canada reduces the quantity of money demanded 
B)  because interest rates fall as the Bank of Canada reduces the supply of money 
C)  because people will want to hold less money as the cost of doing so falls 
D)  because people will want to hold more money as the cost of doing so falls 
A)  because interest rates rise as the Bank of Canada reduces the quantity of money demanded 
B)  because interest rates fall as the Bank of Canada reduces the supply of money 
C)  because people will want to hold less money as the cost of doing so falls 
D)  because people will want to hold more money as the cost of doing so falls

Question 3

Which of the following best defines the multiplier effect?

Accepted Answer

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

Question 4

If there is crowding out,which of the following might decrease as government expenditures increase?

Accepted Answer

A)  the overall change in real GDP 
B)  the demand for money curve 
C)  interest rates 
D)  the demand for capital goods 
A)  the overall change in real GDP 
B)  the demand for money curve 
C)  interest rates 
D)  the demand for capital goods

Question 5

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $100 billion increase in government expenditures shift aggregate demand?

Accepted Answer

A)  It will shift aggregate demand right by more than $100 billion. 
B)  It will shift aggregate demand right by $100 billion. 
C)  It will shift aggregate demand right by less than $100 billion. 
D)  It will shift aggregate demand left by more than $100 billion. 
A)  It will shift aggregate demand right by more than $100 billion. 
B)  It will shift aggregate demand right by $100 billion. 
C)  It will shift aggregate demand right by less than $100 billion. 
D)  It will shift aggregate demand left by more than $100 billion.

Question 6

Figure 15-2  
-Refer to the Figure 15-2.In a closed economy,what would cause the aggregate demand curve to shift from AD to AD*?

Accepted Answer

A)  an increase in government purchases 
B)  a decrease in stock prices 
C)  an increase in consumer and firm optimism about the future 
D)  an increase in the price level 
A)  an increase in government purchases 
B)  a decrease in stock prices 
C)  an increase in consumer and firm optimism about the future 
D)  an increase in the price level

Question 7

Assume that the MPC is 0.75.What is the multiplier?

Accepted Answer

A)  0.25 
B)  1.33 
C)  4 
D)  7.5 
A)  0.25 
B)  1.33 
C)  4 
D)  7.5

Question 8

According to liquidity-preference theory,if the quantity of money demanded is greater than the quantity supplied,what will happen to the interest rate and the quantity of money demanded?

Accepted Answer

A)  The interest rate will increase,and the quantity of money demanded will decrease. 
B)  The interest rate will increase,and the quantity of money demanded will increase. 
C)  The interest rate will decrease,and the quantity of money demanded will decrease. 
D)  The interest rate will decrease,and the quantity of money demanded will increase. 
A)  The interest rate will increase,and the quantity of money demanded will decrease. 
B)  The interest rate will increase,and the quantity of money demanded will increase. 
C)  The interest rate will decrease,and the quantity of money demanded will decrease. 
D)  The interest rate will decrease,and the quantity of money demanded will increase.

Question 9

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

Accepted Answer

A)  They both amplify the consequences. 
B)  They both diminish the consequences. 
C)  The multiplier effect diminishes the consequences,while the crowding-out effect amplifies the consequences. 
D)  The multiplier effect amplifies the consequences,while the crowding-out effect diminishes the consequences. 
A)  They both amplify the consequences. 
B)  They both diminish the consequences. 
C)  The multiplier effect diminishes the consequences,while the crowding-out effect amplifies the consequences. 
D)  The multiplier effect amplifies the consequences,while the crowding-out effect diminishes the consequences.

Question 10

What do supply-side economists believe a reduction in the tax rate will cause?

Accepted Answer

A)  a large shift of the aggregate-supply curve to the left 
B)  a large shift of the aggregate-supply curve to the right 
C)  a small shift of the aggregate-supply curve to the right 
D)  a small shift of the aggregate-supply curve to the left 
A)  a large shift of the aggregate-supply curve to the left 
B)  a large shift of the aggregate-supply curve to the right 
C)  a small shift of the aggregate-supply curve to the right 
D)  a small shift of the aggregate-supply curve to the left

Question 11

In a small open economy with perfect capital mobility,if exchange rates are fixed,how could aggregate demand be increased?

Accepted Answer

A)  by increasing government expenditures 
B)  by increasing tax rates 
C)  by increasing the money supply 
D)  by decreasing the money supply 
A)  by increasing government expenditures 
B)  by increasing tax rates 
C)  by increasing the money supply 
D)  by decreasing the money supply

Question 12

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x2 + x3+… Show that this sum is equal to 1 / (1 - x).

Accepted Answer

Let the sum be m = 1 + x + x2 + x3+… We

Question 13

Which of the following best defines automatic stabilizers?

Accepted Answer

A)  changes in taxes or government spending that increase the lags caused by fiscal policy 
B)  changes in taxes or government spending that shift aggregate demand without requiring active policies 
C)  changes in taxes or government spending that policymakers quickly agree to implement 
D)  any change in taxes or government policies 
A)  changes in taxes or government spending that increase the lags caused by fiscal policy 
B)  changes in taxes or government spending that shift aggregate demand without requiring active policies 
C)  changes in taxes or government spending that policymakers quickly agree to implement 
D)  any change in taxes or government policies

Question 14

In the long run,what determines the level of output?

Accepted Answer

A)  the money supply 
B)  the price level 
C)  supply of capital and labour 
D)  policies aimed at stabilizing the economy 
A)  the money supply 
B)  the price level 
C)  supply of capital and labour 
D)  policies aimed at stabilizing the economy

Question 15

Assuming the crowding-out effect but no multiplier or investment-accelerator effects,what is the effect of a $600 billion increase in government expenditures on the aggregate demand or supply?

Accepted Answer

A)  It shifts the aggregate demand right by more than $600 billion. 
B)  It shifts the aggregate demand right by less than $600 billion. 
C)  It shifts the aggregate supply left by more than $600 billion. 
D)  It shifts the aggregate supply left by less than $600 billion. 
A)  It shifts the aggregate demand right by more than $600 billion. 
B)  It shifts the aggregate demand right by less than $600 billion. 
C)  It shifts the aggregate supply left by more than $600 billion. 
D)  It shifts the aggregate supply left by less than $600 billion.

Question 16

Which statement best describes the interest-rate effect?

Accepted Answer

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

Question 17

If the multiplier is 5,what is the MPC?

Accepted Answer

A)  0.20 
B)  0.50 
C)  0.80 
D)  1.00 
A)  0.20 
B)  0.50 
C)  0.80 
D)  1.00

Question 18

Which of the following is the most liquid asset?

Accepted Answer

A)  capital goods 
B)  stocks and bonds with a low risk 
C)  real estate 
D)  funds in a chequing account 
A)  capital goods 
B)  stocks and bonds with a low risk 
C)  real estate 
D)  funds in a chequing account

Question 19

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things being equal,what would we expect will happen to the price level and real GDP in the short and long run?

Accepted Answer

A)  In the short run,the price level and real GDP would rise,but in the long run they would both be unaffected. 
B)  In the short run,the price level and real GDP would rise,but in the long run the price level would rise and real GDP would be unaffected. 
C)  In the short run,the price level and real GDP would fall,but in the long run they would both be unaffected. 
D)  In the short run,the price level and real GDP would fall,but in the long run the price level would fall and real GDP would be unaffected. 
A)  In the short run,the price level and real GDP would rise,but in the long run they would both be unaffected. 
B)  In the short run,the price level and real GDP would rise,but in the long run the price level would rise and real GDP would be unaffected. 
C)  In the short run,the price level and real GDP would fall,but in the long run they would both be unaffected. 
D)  In the short run,the price level and real GDP would fall,but in the long run the price level would fall and real GDP would be unaffected.

Question 20

Which of the following factors mostly determines the lag problem associated with monetary policy?

Accepted Answer

A)  the fact that business firms make investment plans far in advance 
B)  the political system of checks and balances that slows down the process of determining monetary policy 
C)  the time it takes for changes in government spending to affect the interest rate 
D)  growth in the money supply is too slow 
A)  the fact that business firms make investment plans far in advance 
B)  the political system of checks and balances that slows down the process of determining monetary policy 
C)  the time it takes for changes in government spending to affect the interest rate 
D)  growth in the money supply is too slow

Which statement do opponents of active stabilization policy believe?

According to liquidity-preference theory,why is the money-demand curve downward sloping?

Which of the following best defines the multiplier effect?

If there is crowding out,which of the following might decrease as government expenditures increase?

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $100 billion increase in government expenditures shift aggregate demand?

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,what would cause the aggregate demand curve to shift from AD to AD*?

Assume that the MPC is 0.75.What is the multiplier?

According to liquidity-preference theory,if the quantity of money demanded is greater than the quantity supplied,what will happen to the interest rate and the quantity of money demanded?

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

What do supply-side economists believe a reduction in the tax rate will cause?

In a small open economy with perfect capital mobility,if exchange rates are fixed,how could aggregate demand be increased?

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x2 + x3+… Show that this sum is equal to 1 / (1 - x).

Which of the following best defines automatic stabilizers?

In the long run,what determines the level of output?

Assuming the crowding-out effect but no multiplier or investment-accelerator effects,what is the effect of a $600 billion increase in government expenditures on the aggregate demand or supply?

Which statement best describes the interest-rate effect?

If the multiplier is 5,what is the MPC?

Which of the following is the most liquid asset?

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things being equal,what would we expect will happen to the price level and real GDP in the short and long run?

Which of the following factors mostly determines the lag problem associated with monetary policy?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which statement do opponents of active stabilization policy believe?

According to liquidity-preference theory,why is the money-demand curve downward sloping?

Which of the following best defines the multiplier effect?

If there is crowding out,which of the following might decrease as government expenditures increase?

Assuming no crowding-out,investment-accelerator,or multiplier effects,how will a $100 billion increase in government expenditures shift aggregate demand?

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,what would cause the aggregate demand curve to shift from AD to AD*?

Assume that the MPC is 0.75.What is the multiplier?

According to liquidity-preference theory,if the quantity of money demanded is greater than the quantity supplied,what will happen to the interest rate and the quantity of money demanded?

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

What do supply-side economists believe a reduction in the tax rate will cause?

In a small open economy with perfect capital mobility,if exchange rates are fixed,how could aggregate demand be increased?

Let x be the marginal propensity to consume,MPC.The principle of spending multiplier involves calculating the infinite sum 1 + x + x2 + x3+… Show that this sum is equal to 1 / (1 - x).

Which of the following best defines automatic stabilizers?

In the long run,what determines the level of output?

Assuming the crowding-out effect but no multiplier or investment-accelerator effects,what is the effect of a $600 billion increase in government expenditures on the aggregate demand or supply?

Which statement best describes the interest-rate effect?

If the multiplier is 5,what is the MPC?

Which of the following is the most liquid asset?

The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things being equal,what would we expect will happen to the price level and real GDP in the short and long run?

Which of the following factors mostly determines the lag problem associated with monetary policy?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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