Question 1

Which statements do economists NOT agree on?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run,increases in the money supply increase prices,but not output. 
C)  Recessions are associated with decreases in consumption,investment,and employment. 
D)  Government should use fiscal policy to try and stabilize the economy. 
A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run,increases in the money supply increase prices,but not output. 
C)  Recessions are associated with decreases in consumption,investment,and employment. 
D)  Government should use fiscal policy to try and stabilize the economy.

Question 2

In the long run,what do changes in the money supply affect?

Accepted Answer

A)  price level 
B)  output 
C)  unemployment rates 
D)  tax rates 
A)  price level 
B)  output 
C)  unemployment rates 
D)  tax rates

Question 3

Which policy would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

Accepted Answer

A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  an increase in taxes 
A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  an increase in taxes

Question 4

If a central bank targets the interest rate,what does this imply?

Accepted Answer

A)  The central bank can then set the money supply at whatever value it wants. 
B)  The central bank must increase the money supply if the interest rate is above its target. 
C)  The central bank must decrease the money supply if the interest rate is above its target. 
D)  The central bank must not change the money supply. 
A)  The central bank can then set the money supply at whatever value it wants. 
B)  The central bank must increase the money supply if the interest rate is above its target. 
C)  The central bank must decrease the money supply if the interest rate is above its target. 
D)  The central bank must not change the money supply.

Question 5

According to liquidity-preference theory,what action taken by the Bank of Canada would shift the money-supply curve?

Accepted Answer

A)  if the Bank of Canada engaged in arbitrage 
B)  if the Bank of Canada changed the inflation rate 
C)  if the Bank of Canada changed the exchange rate 
D)  if the Bank of Canada engaged in open-market transactions 
A)  if the Bank of Canada engaged in arbitrage 
B)  if the Bank of Canada changed the inflation rate 
C)  if the Bank of Canada changed the exchange rate 
D)  if the Bank of Canada engaged in open-market transactions

Question 6

As the MPC gets close to 1,what does the value of the multiplier approach?

Accepted Answer

A)  0 
B)  1 
C)  10 
D)  infinity 
A)  0 
B)  1 
C)  10 
D)  infinity

Question 7

Which statement is consistent with the short-run economic theories studied?

Accepted Answer

A)  In the short run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds. 
B)  In the short run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
C)  In the short run,output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level is stuck. 
D)  In the short run,output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
A)  In the short run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds. 
B)  In the short run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
C)  In the short run,output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level is stuck. 
D)  In the short run,output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

Question 8

How does an increase in the interest rate affect the demand for goods and services?

Accepted Answer

A)  It increases the cost of borrowing and people consume more. 
B)  It decreases the cost of borrowing and people consume more. 
C)  It increases the cost of borrowing and people consume less. 
D)  It decreases the cost of borrowing and people consume less. 
A)  It increases the cost of borrowing and people consume more. 
B)  It decreases the cost of borrowing and people consume more. 
C)  It increases the cost of borrowing and people consume less. 
D)  It decreases the cost of borrowing and people consume less.

Question 9

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

Accepted Answer

A)  It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth. 
B)  It is relatively important in Canada because consumption spending is a large part of GDP. 
C)  It is relatively unimportant in Canada because money holdings are a small part of consumer wealth. 
D)  It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates. 
A)  It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth. 
B)  It is relatively important in Canada because consumption spending is a large part of GDP. 
C)  It is relatively unimportant in Canada because money holdings are a small part of consumer wealth. 
D)  It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates.

Question 10

For the Canadian economy,what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

Accepted Answer

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

Question 11

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Bank of Canada conducts monetary pol

Question 12

Over what period of time is the liquidity-preference theory most relevant,and what does it suppose?

Accepted Answer

A)  short run; it supposes that the price level adjusts to bring money supply and money demand into balance 
B)  short run; it supposes that the interest rate adjusts to bring money supply and money demand into balance 
C)  long run; it supposes that the price level adjusts to bring money supply and money demand into balance 
D)  long run; it supposes that the interest rate adjusts to bring money supply and money demand into balance 
A)  short run; it supposes that the price level adjusts to bring money supply and money demand into balance 
B)  short run; it supposes that the interest rate adjusts to bring money supply and money demand into balance 
C)  long run; it supposes that the price level adjusts to bring money supply and money demand into balance 
D)  long run; it supposes that the interest rate adjusts to bring money supply and money demand into balance

Question 13

When the Bank of Canada lowers the growth rate of the money supply,what must it take into account?

Accepted Answer

A)  the short-run effects on production and inflation 
B)  the long-run effects on production and inflation 
C)  the long-run effect on production and the short-run effect on inflation 
D)  the short-run effect on production and the long-run effect on inflation 
A)  the short-run effects on production and inflation 
B)  the long-run effects on production and inflation 
C)  the long-run effect on production and the short-run effect on inflation 
D)  the short-run effect on production and the long-run effect on inflation

Question 14

In recent years,what has been the predominant method used by the Bank of Canada to alter the money supply?

Accepted Answer

A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate 
A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate

Question 15

If the MPC is 0,what is the multiplier?

Accepted Answer

A)  0 
B)  1 
C)  10 
D)  100 
A)  0 
B)  1 
C)  10 
D)  100

Question 16

When the interest rate decreases,what happens to the opportunity cost of holding money and the quantity of money demanded?

Accepted Answer

A)  The opportunity cost of holding money increases,so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases,so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases,so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases,so the quantity of money demanded decreases. 
A)  The opportunity cost of holding money increases,so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases,so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases,so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases,so the quantity of money demanded decreases.

Question 17

Which of the following best defines the marginal propensity to consume (MPC)?

Accepted Answer

A)  the fraction of extra income that a household consumes rather than saves 
B)  the fraction of extra income that a household either consumes or saves 
C)  the fraction of total income that a household consumes rather than saves 
D)  the fraction of total income that a household either consumes or saves 
A)  the fraction of extra income that a household consumes rather than saves 
B)  the fraction of extra income that a household either consumes or saves 
C)  the fraction of total income that a household consumes rather than saves 
D)  the fraction of total income that a household either consumes or saves

Question 18

How do open-market purchases affect the price level and real GDP?

Accepted Answer

A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP. 
A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP.

Question 19

Which of the following do critics of stabilization policy argue?

Accepted Answer

A)  There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  The impact of policy may not last long enough for the problem to be solved. 
C)  Policy cannot cause economic fluctuations. 
D)  Policy can be a source of,instead of a cure for,recessions. 
A)  There is too short a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  The impact of policy may not last long enough for the problem to be solved. 
C)  Policy cannot cause economic fluctuations. 
D)  Policy can be a source of,instead of a cure for,recessions.

Question 20

Suppose the closed economy is in long-run equilibrium.Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left.The government wants to increase 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 0.9,by how much do government purchases have to rise?

Accepted Answer

A)  $10 billion 
B)  $20 billion 
C)  $50 billion 
D)  $100 billion 
A)  $10 billion 
B)  $20 billion 
C)  $50 billion 
D)  $100 billion

Which statements do economists NOT agree on?

In the long run,what do changes in the money supply affect?

Which policy would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

If a central bank targets the interest rate,what does this imply?

According to liquidity-preference theory,what action taken by the Bank of Canada would shift the money-supply curve?

As the MPC gets close to 1,what does the value of the multiplier approach?

Which statement is consistent with the short-run economic theories studied?

How does an increase in the interest rate affect the demand for goods and services?

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

For the Canadian economy,what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

What is the difference between monetary policy and fiscal policy?

Over what period of time is the liquidity-preference theory most relevant,and what does it suppose?

When the Bank of Canada lowers the growth rate of the money supply,what must it take into account?

In recent years,what has been the predominant method used by the Bank of Canada to alter the money supply?

If the MPC is 0,what is the multiplier?

When the interest rate decreases,what happens to the opportunity cost of holding money and the quantity of money demanded?

Which of the following best defines the marginal propensity to consume (MPC)?

How do open-market purchases affect the price level and real GDP?

Which of the following do critics of stabilization policy argue?

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 statements do economists NOT agree on?

In the long run,what do changes in the money supply affect?

Which policy would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

If a central bank targets the interest rate,what does this imply?

According to liquidity-preference theory,what action taken by the Bank of Canada would shift the money-supply curve?

As the MPC gets close to 1,what does the value of the multiplier approach?

Which statement is consistent with the short-run economic theories studied?

How does an increase in the interest rate affect the demand for goods and services?

The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?

For the Canadian economy,what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

What is the difference between monetary policy and fiscal policy?

Over what period of time is the liquidity-preference theory most relevant,and what does it suppose?

When the Bank of Canada lowers the growth rate of the money supply,what must it take into account?

In recent years,what has been the predominant method used by the Bank of Canada to alter the money supply?

If the MPC is 0,what is the multiplier?

When the interest rate decreases,what happens to the opportunity cost of holding money and the quantity of money demanded?

Which of the following best defines the marginal propensity to consume (MPC)?

How do open-market purchases affect the price level and real GDP?

Which of the following do critics of stabilization policy argue?

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