Question 1

Which action might we logically expect to result from rising stock prices?

Accepted Answer

A)  increased household wealth leading to increased consumption spending 
B)  firms sell fewer shares of new stock 
C)  firms spend less on investment 
D)  people will save more and consume less 
A)  increased household wealth leading to increased consumption spending 
B)  firms sell fewer shares of new stock 
C)  firms spend less on investment 
D)  people will save more and consume less

Question 2

According to most economists,what will a cut in tax rates do?

Accepted Answer

A)  increase government tax revenue 
B)  decrease significantly the hours people work 
C)  have a smaller effect on the aggregate-supply curve than what supply-side economists believe 
D)  increase tax revenue by increasing worker effort 
A)  increase government tax revenue 
B)  decrease significantly the hours people work 
C)  have a smaller effect on the aggregate-supply curve than what supply-side economists believe 
D)  increase tax revenue by increasing worker effort

Question 3

Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?

Accepted Answer

A)  the aggregate-demand and aggregate-supply theory 
B)  the classical theory 
C)  the liquidity-preference theory 
D)  the general theory of employment 
A)  the aggregate-demand and aggregate-supply theory 
B)  the classical theory 
C)  the liquidity-preference theory 
D)  the general theory of employment

Question 4

If expected inflation is constant and the nominal interest rate increases,how does the real interest rate change?

Accepted Answer

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

Question 5

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

Accepted Answer

Automatic stabilizers are countercyclica

Question 6

According to liquidity-preference theory,what is the shape of the money-supply curve?

Accepted Answer

A)  upward sloping 
B)  downward sloping 
C)  vertical 
D)  horizontal 
A)  upward sloping 
B)  downward sloping 
C)  vertical 
D)  horizontal

Question 7

Suppose the economy is in long-run equilibrium.Parliament passes regulations that make it more costly to conduct business,so the long-run aggregate-supply curve shifts $80 billion to the left.At the same time,government purchases increase by $60 billion.If the MPC equals 0.8 and the crowding-out effect is $70 billion,what would we expect to happen in the long run to real GDP and the price level?

Accepted Answer

A)  Both real GDP and the price level would be higher. 
B)  Both real GDP and the price level would be lower. 
C)  Real GDP would be lower,but the price level would be higher. 
D)  Real GDP would be lower,but the price level would be the same. 
A)  Both real GDP and the price level would be higher. 
B)  Both real GDP and the price level would be lower. 
C)  Real GDP would be lower,but the price level would be higher. 
D)  Real GDP would be lower,but the price level would be the same.

Question 8

Which of Keynes's theories does liquidity preference refer to?

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates 
B)  the effects of changes in money demand and supply on exchange rates 
C)  the effects of changes in money demand and supply on expenditure 
D)  the effects of changes in money demand and supply on real wealth 
A)  the effects of changes in money demand and supply on interest rates 
B)  the effects of changes in money demand and supply on exchange rates 
C)  the effects of changes in money demand and supply on expenditure 
D)  the effects of changes in money demand and supply on real wealth

Question 9

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

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 10

Assuming the multiplier effect but no crowding-out or investment-accelerator effects,what is the effect of a $400 billion increase in government expenditures on the aggregate demand?

Accepted Answer

A)  It shifts the aggregate demand right by more than $400 billion. 
B)  It shifts the aggregate demand right by less than $400 billion. 
C)  It shifts the aggregate demand left by more than $400 billion 
D)  It shifts the aggregate demand left by less than $400 billion. 
A)  It shifts the aggregate demand right by more than $400 billion. 
B)  It shifts the aggregate demand right by less than $400 billion. 
C)  It shifts the aggregate demand left by more than $400 billion 
D)  It shifts the aggregate demand left by less than $400 billion.

Question 11

During expansions,what do automatic stabilizers make government expenditures and taxes do?

Accepted Answer

A)  They make government expenditures and taxes fall. 
B)  They make government expenditures and taxes rise. 
C)  They make government expenditures rise and taxes fall. 
D)  They make government expenditures fall and taxes rise. 
A)  They make government expenditures and taxes fall. 
B)  They make government expenditures and taxes rise. 
C)  They make government expenditures rise and taxes fall. 
D)  They make government expenditures fall and taxes rise.

Question 12

Which of the following shifts money demand to the left?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 13

Which statement is consistent with the Keynesian theory?

Accepted Answer

A)  Short-run economic fluctuations are caused by unstable aggregate demand; therefore,policy instruments should be used to stabilize the economy. 
B)  Irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment. 
C)  Changes in business and consumer expectations generally stabilize the economy. 
D)  Changes in consumer confidence are irrelevant for the economy. 
A)  Short-run economic fluctuations are caused by unstable aggregate demand; therefore,policy instruments should be used to stabilize the economy. 
B)  Irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment. 
C)  Changes in business and consumer expectations generally stabilize the economy. 
D)  Changes in consumer confidence are irrelevant for the economy.

Question 14

According to the theory of liquidity preference,what does an increase in the price level cause the interest rate and investment to do?

Accepted Answer

A)  It causes both the interest rate and investment to rise. 
B)  It causes both the interest rate and investment to fall. 
C)  It causes the interest rate to rise and investment to fall. 
D)  It causes the interest rate to fall and investment to rise. 
A)  It causes both the interest rate and investment to rise. 
B)  It causes both the interest rate and investment to fall. 
C)  It causes the interest rate to rise and investment to fall. 
D)  It causes the interest rate to fall and investment to rise.

Question 15

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

Accepted Answer

A)  It increases the interest rate and so increases investment spending. 
B)  It increases the interest rate and so decreases investment spending. 
C)  It decreases the interest rate and so increases investment spending. 
D)  It decreases the interest rate and so decreases investment spending. 
A)  It increases the interest rate and so increases investment spending. 
B)  It increases the interest rate and so decreases investment spending. 
C)  It decreases the interest rate and so increases investment spending. 
D)  It decreases the interest rate and so decreases investment spending.

Question 16

According to the liquidity-preference theory,equilibrium in the money market is achieved by adjustments in which of the following?

Accepted Answer

A)  price level 
B)  interest rate 
C)  exchange rate 
D)  expenditure 
A)  price level 
B)  interest rate 
C)  exchange rate 
D)  expenditure

Question 17

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,what is most likely to happen?

Accepted Answer

A)  crowding-out effects 
B)  no crowding-out effects 
C)  no increase in the demand for goods and services 
D)  a decrease in aggregate demand 
A)  crowding-out effects 
B)  no crowding-out effects 
C)  no increase in the demand for goods and services 
D)  a decrease in aggregate demand

Question 18

According to liquidity-preference theory,what is the opportunity cost of holding money?

Accepted Answer

A)  the interest rate on bonds 
B)  the inflation rate 
C)  the cost of currency exchange 
D)  the difference between the inflation rate and the interest rate on bonds 
A)  the interest rate on bonds 
B)  the inflation rate 
C)  the cost of currency exchange 
D)  the difference between the inflation rate and the interest rate on bonds

Question 19

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall,Sleepwell Hotels decides to build some new hotels. 
B)  The exchange rate falls,so French restaurants in Paris buy more Canadian beef. 
C)  Janet feels wealthier because of the price drop,so she decides to landscape her backyard. 
D)  With prices down and wages fixed by contract,Safe Well Servicing decides to lay off workers. 
A)  When interest rates fall,Sleepwell Hotels decides to build some new hotels. 
B)  The exchange rate falls,so French restaurants in Paris buy more Canadian beef. 
C)  Janet feels wealthier because of the price drop,so she decides to landscape her backyard. 
D)  With prices down and wages fixed by contract,Safe Well Servicing decides to lay off workers.

Question 20

What does liquidity refer to?

Accepted Answer

A)  the relation between the price and interest rate of an asset 
B)  the risk of an asset relative to its selling price 
C)  the ease with which an asset is converted into a medium of exchange 
D)  the sensitivity of investment spending to changes in the interest rate 
A)  the relation between the price and interest rate of an asset 
B)  the risk of an asset relative to its selling price 
C)  the ease with which an asset is converted into a medium of exchange 
D)  the sensitivity of investment spending to changes in the interest rate

Which action might we logically expect to result from rising stock prices?

According to most economists,what will a cut in tax rates do?

Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?

If expected inflation is constant and the nominal interest rate increases,how does the real interest rate change?

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

According to liquidity-preference theory,what is the shape of the money-supply curve?

Which of Keynes's theories does liquidity preference refer to?

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

Assuming the multiplier effect but no crowding-out or investment-accelerator effects,what is the effect of a $400 billion increase in government expenditures on the aggregate demand?

During expansions,what do automatic stabilizers make government expenditures and taxes do?

Which of the following shifts money demand to the left?

Which statement is consistent with the Keynesian theory?

According to the theory of liquidity preference,what does an increase in the price level cause the interest rate and investment to do?

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

According to the liquidity-preference theory,equilibrium in the money market is achieved by adjustments in which of the following?

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,what is most likely to happen?

According to liquidity-preference theory,what is the opportunity cost of holding money?

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

What does liquidity refer to?

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 action might we logically expect to result from rising stock prices?

According to most economists,what will a cut in tax rates do?

Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?

If expected inflation is constant and the nominal interest rate increases,how does the real interest rate change?

How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.

According to liquidity-preference theory,what is the shape of the money-supply curve?

Which of Keynes's theories does liquidity preference refer to?

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

Assuming the multiplier effect but no crowding-out or investment-accelerator effects,what is the effect of a $400 billion increase in government expenditures on the aggregate demand?

During expansions,what do automatic stabilizers make government expenditures and taxes do?

Which of the following shifts money demand to the left?

Which statement is consistent with the Keynesian theory?

According to the theory of liquidity preference,what does an increase in the price level cause the interest rate and investment to do?

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

According to the liquidity-preference theory,equilibrium in the money market is achieved by adjustments in which of the following?

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,what is most likely to happen?

According to liquidity-preference theory,what is the opportunity cost of holding money?

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

What does liquidity refer to?

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