Question 1

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply 
A) an increase in the price level 
B) an increase in the money supply 
C) a decrease in the price level 
D) a decrease in the money supply

Question 2

When the Fed increases the money supply,we expect

Accepted Answer

A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise. 
A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise.

Question 3

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Accepted Answer

A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase. 
A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase.

Question 4

According to liquidity preference theory,if the price level

Accepted Answer

A) fell,the interest rate would rise,and induce investment spending to rise. 
B) fell,the interest rate would fall,and induce investment spending to fall. 
C) rose,the interest rate would rise,and induce investment spending to fall. 
D) rose,the interest rate would fall,and induce investment spending to rise. 
A) fell,the interest rate would rise,and induce investment spending to rise. 
B) fell,the interest rate would fall,and induce investment spending to fall. 
C) rose,the interest rate would rise,and induce investment spending to fall. 
D) rose,the interest rate would fall,and induce investment spending to rise.

Question 5

According to the theory of liquidity preference,

Accepted Answer

A) if the interest rate is below the equilibrium level,then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B) if the interest rate is above the equilibrium level,then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C) the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D) All of the above are correct. 
A) if the interest rate is below the equilibrium level,then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B) if the interest rate is above the equilibrium level,then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C) the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D) All of the above are correct.

Question 6

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

Accepted Answer

A) the interest rate on bonds. 
B) the inflation rate. 
C) the cost of converting bonds to a medium of 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 converting bonds to a medium of exchange. 
D) the difference between the inflation rate and the interest rate on bonds.

Question 7

If the stock market crashes,then

Accepted Answer

A) aggregate demand increases,which the Fed could offset by increasing the money supply. 
B) aggregate demand increases,which the Fed could offset by decreasing the money supply. 
C) aggregate demand decreases,which the Fed could offset by increasing the money supply. 
D) aggregate demand decreases,which the Fed could offset by decreasing the money supply. 
A) aggregate demand increases,which the Fed could offset by increasing the money supply. 
B) aggregate demand increases,which the Fed could offset by decreasing the money supply. 
C) aggregate demand decreases,which the Fed could offset by increasing the money supply. 
D) aggregate demand decreases,which the Fed could offset by decreasing the money supply.

Question 8

Figure 34-3.  
-Refer to Figure 34-3.What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

A) the supply of money 
B) the demand for money 
C) the rate of inflation 
D) Aggregate Demand. 
A) the supply of money 
B) the demand for money 
C) the rate of inflation 
D) Aggregate Demand.

Question 9

In the short run,an increase in the money supply causes interest rates to

Accepted Answer

A) increase,and aggregate demand to shift right. 
B) increase,and aggregate demand to shift left. 
C) decrease,and aggregate demand to shift right. 
D) decrease,and aggregate demand to shift left. 
A) increase,and aggregate demand to shift right. 
B) increase,and aggregate demand to shift left. 
C) decrease,and aggregate demand to shift right. 
D) decrease,and aggregate demand to shift left.

Question 10

If the stock market booms,then

Accepted Answer

A) aggregate demand increases,which the Fed could offset by purchasing bonds. 
B) aggregate supply increases,which the Fed could offset by selling bonds. 
C) aggregate demand increases,which the Fed could offset by selling bonds. 
D) aggregate supply increases,which the Fed could offset by purchasing the money supply. 
A) aggregate demand increases,which the Fed could offset by purchasing bonds. 
B) aggregate supply increases,which the Fed could offset by selling bonds. 
C) aggregate demand increases,which the Fed could offset by selling bonds. 
D) aggregate supply increases,which the Fed could offset by purchasing the money supply.

Question 11

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A) shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B) the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C) changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D) the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
A) shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B) the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C) changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D) the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.

Question 12

In response to the sharp decline in stock prices in October 1987,the Federal Reserve

Accepted Answer

A) increased the money supply and increased interest rates. 
B) increased the money supply and decreased interest rates. 
C) decreased the money supply and increased interest rates. 
D) decreased the money supply and decreased interest rates. 
A) increased the money supply and increased interest rates. 
B) increased the money supply and decreased interest rates. 
C) decreased the money supply and increased interest rates. 
D) decreased the money supply and decreased interest rates.

Question 13

According to liquidity preference theory,an increase in the price level shifts the

Accepted Answer

A) money demand curve rightward,so the interest rate increases. 
B) money demand curve rightward,so the interest rate decreases. 
C) money demand curve leftward,so the interest rate decreases. 
D) money demand curve leftward,so the interest rate increases. 
A) money demand curve rightward,so the interest rate increases. 
B) money demand curve rightward,so the interest rate decreases. 
C) money demand curve leftward,so the interest rate decreases. 
D) money demand curve leftward,so the interest rate increases.

Question 14

People will want to hold more money if the price level

Accepted Answer

A) or if the interest rate increases. 
B) or if the interest rate decreases. 
C) increases or if the interest rate decreases. 
D) decreases or if the interest rate increases. 
A) or if the interest rate increases. 
B) or if the interest rate decreases. 
C) increases or if the interest rate decreases. 
D) decreases or if the interest rate increases.

Question 15

When the interest rate is below the equilibrium level,

Accepted Answer

A) the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B) people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C) bond issuers and banks respond by lowering the interest rates they offer. 
D) All of the above are correct. 
A) the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B) people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C) bond issuers and banks respond by lowering the interest rates they offer. 
D) All of the above are correct.

Question 16

If the stock market crashes,then

Accepted Answer

A) aggregate demand decreases,which the Fed could offset by purchasing bonds. 
B) aggregate demand decreases,which the Fed could offset by selling bonds. 
C) aggregate demand increases,which the Fed could offset by selling bonds. 
D) aggregate demand increases,which the Fed could offset by purchasing the money supply. 
A) aggregate demand decreases,which the Fed could offset by purchasing bonds. 
B) aggregate demand decreases,which the Fed could offset by selling bonds. 
C) aggregate demand increases,which the Fed could offset by selling bonds. 
D) aggregate demand increases,which the Fed could offset by purchasing the money supply.

Question 17

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓ 
A) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓

Question 18

Figure 34-2.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 34-2.Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A) the nominal interest rate 
B) the quantity of money demanded 
C) investment 
D) the expected rate of inflation 
A) the nominal interest rate 
B) the quantity of money demanded 
C) investment 
D) the expected rate of inflation

Question 19

When the Fed decreases the money supply,we expect

Accepted Answer

A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise. 
A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise.

Question 20

Figure 34-2.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 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A) the quantity of goods and services demanded is higher at P2 than it is at P1. 
B) the quantity of money is higher at Y1 than it is at Y2. 
C) an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D) All of the above are correct. 
A) the quantity of goods and services demanded is higher at P2 than it is at P1. 
B) the quantity of money is higher at Y1 than it is at Y2. 
C) an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D) All of the above are correct.

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Monetary Policy Influences Aggregate Demand

Which of the following shifts aggregate demand to the right?

When the Fed increases the money supply,we expect

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

According to liquidity preference theory,if the price level

According to the theory of liquidity preference,

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

If the stock market crashes,then

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the downward-sloping line on the left-hand graph?

In the short run,an increase in the money supply causes interest rates to

If the stock market booms,then

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

In response to the sharp decline in stock prices in October 1987,the Federal Reserve

According to liquidity preference theory,an increase in the price level shifts the

People will want to hold more money if the price level

When the interest rate is below the equilibrium level,

If the stock market crashes,then

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

When the Fed decreases the money supply,we expect

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B