Question 1

Why are monetary authorities concerned about stock market booms?

Accepted Answer

A)  because the booms decrease consumption spending 
B)  because the booms decrease investment spending 
C)  because the booms increase consumption spending 
D)  because the booms increase government deficit 
A)  because the booms decrease consumption spending 
B)  because the booms decrease investment spending 
C)  because the booms increase consumption spending 
D)  because the booms increase government deficit

Question 2

During recessions,what do taxes tend to do,and to what effect?

Accepted Answer

A)  They rise and so shift aggregate demand right. 
B)  They rise and so shift aggregate demand left. 
C)  They fall and so shift aggregate demand right. 
D)  They fall and so shift aggregate demand left. 
A)  They rise and so shift aggregate demand right. 
B)  They rise and so shift aggregate demand left. 
C)  They fall and so shift aggregate demand right. 
D)  They fall and so shift aggregate demand left.

Question 3

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

Accepted Answer

A) True 
 B)False

Question 4

The government buys a bridge.The owner of the company that builds the bridge pays her workers.The workers increase their spending.Firms that the workers buy goods from increase their output.What does this type of effect on spending illustrate?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the marginal propensity to consume effect 
D)  the investment accelerator effect

Question 5

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 6

What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?

Accepted Answer

A)  multiplier effect 
B)  crowding-out effect 
C)  catch-up effect 
D)  Fisher effect 
A)  multiplier effect 
B)  crowding-out effect 
C)  catch-up effect 
D)  Fisher effect

Question 7

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

Accepted Answer

A)  The interest rate increases,and output demanded increases. 
B)  The interest rate increases,and output demanded decreases. 
C)  The interest rate decreases,and output demanded increases. 
D)  The interest rate decreases,and output demanded decreases. 
A)  The interest rate increases,and output demanded increases. 
B)  The interest rate increases,and output demanded decreases. 
C)  The interest rate decreases,and output demanded increases. 
D)  The interest rate decreases,and output demanded decreases.

Question 8

What did Keynes argue about aggregate demand?

Accepted Answer

A)  Aggregate demand is stable because the economy returns to long-run equilibrium. 
B)  Aggregate demand is stable because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  Aggregate demand is unstable and the government should actively stimulate aggregate demand when production is at less than its full employment level. 
D)  Aggregate demand is unstable and economies should be left to deal with short-run fluctuations on their own. 
A)  Aggregate demand is stable because the economy returns to long-run equilibrium. 
B)  Aggregate demand is stable because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  Aggregate demand is unstable and the government should actively stimulate aggregate demand when production is at less than its full employment level. 
D)  Aggregate demand is unstable and economies should be left to deal with short-run fluctuations on their own.

Question 9

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)  interest rate 
B)  exchange rate 
C)  quantity of output 
D)  price level 
A)  interest rate 
B)  exchange rate 
C)  quantity of output 
D)  price level

Question 10

Which of the following is NOT an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the employment insurance benefits 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the employment insurance benefits 
C)  the federal income tax 
D)  the welfare system

Question 11

When a central bank sets a target for the interest rate,what does it commit itself to?

Accepted Answer

A)  revealing its target to the public 
B)  adjusting the demand for money in order to make the equilibrium in the money market hit that target 
C)  adjusting the money supply in order to meet the interest-rate target 
D)  having to make open-market sales 
A)  revealing its target to the public 
B)  adjusting the demand for money in order to make the equilibrium in the money market hit that target 
C)  adjusting the money supply in order to meet the interest-rate target 
D)  having to make open-market sales

Question 12

If the interest rate is above a central bank's target,what should the central bank do?

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 13

When the government reduces taxes,all other things being equal,what will decrease?

Accepted Answer

A)  consumption 
B)  take-home pay 
C)  household saving 
D)  government surplus 
A)  consumption 
B)  take-home pay 
C)  household saving 
D)  government surplus

Question 14

According to which theory do changes in the interest rate bring the money market into equilibrium?

Accepted Answer

A)  purchasing-power parity theory 
B)  aggregate-demand and aggregate-supply theory 
C)  liquidity-preference theory 
D)  classical theory 
A)  purchasing-power parity theory 
B)  aggregate-demand and aggregate-supply theory 
C)  liquidity-preference theory 
D)  classical theory

Question 15

This question considers how an economy changes over time and how the aggregate demand and supply model treats the time dimension of an economy.
a)How do the aggregate-demand and aggregate-supply curves shift over time?
b)Related to point a,identify and discuss the limitations to the simple,"static" aggregate-demand and aggregate-supply model.What are the consequences of predicting phenomena that have a time dimension (remember the 'short-run' and 'long-run' distinction)using an essentially static model?
c)How could the static model be changed to better incorporate the time dimension of the economic variables it tries to explain?

Accepted Answer

a)In the long run,an economy's output gr

Question 16

Figure 15-1  
-Refer to the Figure 15-1.What will happen if the current interest rate is 2 percent?

Accepted Answer

A)  There will be excess money supply. 
B)  People will sell more bonds,which drives interest rates up. 
C)  People will buy more bonds,which drives interest rates up... 
D)  People will sell more bonds,which drives the interest rates down. 
A)  There will be excess money supply. 
B)  People will sell more bonds,which drives interest rates up. 
C)  People will buy more bonds,which drives interest rates up... 
D)  People will sell more bonds,which drives the interest rates down.

Question 17

During recessions,the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 18

What does fiscal policy primarily affect in the short run?

Accepted Answer

A)  growth 
B)  investment 
C)  aggregate demand 
D)  aggregate supply 
A)  growth 
B)  investment 
C)  aggregate demand 
D)  aggregate supply

Question 19

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

Accepted Answer

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

Question 20

The theory of liquidity preference assumes that the nominal supply of money is determined by which of the following?

Accepted Answer

A)  the level of real GDP 
B)  the rate of inflation 
C)  government spending 
D)  the central bank 
A)  the level of real GDP 
B)  the rate of inflation 
C)  government spending 
D)  the central bank

Why are monetary authorities concerned about stock market booms?

During recessions,what do taxes tend to do,and to what effect?

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

The government buys a bridge.The owner of the company that builds the bridge pays her workers.The workers increase their spending.Firms that the workers buy goods from increase their output.What does this type of effect on spending illustrate?

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

What did Keynes argue about aggregate demand?

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Which of the following is NOT an automatic stabilizer?

When a central bank sets a target for the interest rate,what does it commit itself to?

If the interest rate is above a central bank's target,what should the central bank do?

When the government reduces taxes,all other things being equal,what will decrease?

According to which theory do changes in the interest rate bring the money market into equilibrium?

Figure 15-1 -Refer to the Figure 15-1.What will happen if the current interest rate is 2 percent?

During recessions,the government tends to run a budget deficit.

What does fiscal policy primarily affect in the short run?

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

The theory of liquidity preference assumes that the nominal supply of money is determined by which of the following?

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

Why are monetary authorities concerned about stock market booms?

During recessions,what do taxes tend to do,and to what effect?

For Canada,the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

The government buys a bridge.The owner of the company that builds the bridge pays her workers.The workers increase their spending.Firms that the workers buy goods from increase their output.What does this type of effect on spending illustrate?

When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.

What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?

According to liquidity-preference theory,how does an increase in the price level affect the interest rate and output demanded,respectively?

What did Keynes argue about aggregate demand?

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Which of the following is NOT an automatic stabilizer?

When a central bank sets a target for the interest rate,what does it commit itself to?

If the interest rate is above a central bank's target,what should the central bank do?

When the government reduces taxes,all other things being equal,what will decrease?

According to which theory do changes in the interest rate bring the money market into equilibrium?

Figure 15-1 -Refer to the Figure 15-1.What will happen if the current interest rate is 2 percent?

During recessions,the government tends to run a budget deficit.

What does fiscal policy primarily affect in the short run?

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

The theory of liquidity preference assumes that the nominal supply of money is determined by which of the following?

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

Filters