Question 1

If the stock market booms,then

Accepted Answer

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

Question 2

The Federal Funds rate is the interest rate

Accepted Answer

A) banks charge each other for short-term loans. 
B) the Fed charges depository institutions for short-term loans. 
C) the Fed pays on deposits. 
D) interest rate on 3 month Treasury bills. 
A) banks charge each other for short-term loans. 
B) the Fed charges depository institutions for short-term loans. 
C) the Fed pays on deposits. 
D) interest rate on 3 month Treasury bills.

Question 3

Changes in the interest rate

Accepted Answer

A) shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. 
B) shift aggregate demand if they are caused by changes in the price level,but not if they are caused by changes in fiscal or monetary policy. 
C) shift aggregate demand if they are caused by fiscal or monetary policy,but not if they are caused by changes in the price level. 
D) do not shift aggregate demand. 
A) shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. 
B) shift aggregate demand if they are caused by changes in the price level,but not if they are caused by changes in fiscal or monetary policy. 
C) shift aggregate demand if they are caused by fiscal or monetary policy,but not if they are caused by changes in the price level. 
D) do not shift aggregate demand.

Question 4

Liquidity preference theory is most relevant to the

Accepted Answer

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

Question 5

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.As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A) the price level is held fixed at P1. 
B) the interest rate is held fixed at r1. 
C) the money supply is changing so as to keep the money market in equilibrium. 
D) the expected inflation rate is changing so as to keep the real interest rate constant. 
A) the price level is held fixed at P1. 
B) the interest rate is held fixed at r1. 
C) the money supply is changing so as to keep the money market in equilibrium. 
D) the expected inflation rate is changing so as to keep the real interest rate constant.

Question 6

If the Fed conducts open-market sales,the money supply

Accepted Answer

A) increases and aggregate demand shifts right. 
B) increases and aggregate demand shifts left. 
C) decreases and aggregate demand shifts right. 
D) decreases and aggregate demand shifts left. 
A) increases and aggregate demand shifts right. 
B) increases and aggregate demand shifts left. 
C) decreases and aggregate demand shifts right. 
D) decreases and aggregate demand shifts left.

Question 7

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A) liquidity preference. 
B) liquidity trap. 
C) open-market trap. 
D) interest-rate contraction. 
A) liquidity preference. 
B) liquidity trap. 
C) open-market trap. 
D) interest-rate contraction.

Question 8

Because the liquidity-preference framework focuses on the

Accepted Answer

A) short run,it assumes the price level adjusts to bring the money market to equilibrium. 
B) short run,it assumes the interest rate adjusts to bring the money market to equilibrium. 
C) long run,it assumes the price level adjusts to bring the money market to equilibrium. 
D) long run,it assumes the interest rate adjusts to bring the money market to equilibrium. 
A) short run,it assumes the price level adjusts to bring the money market to equilibrium. 
B) short run,it assumes the interest rate adjusts to bring the money market to equilibrium. 
C) long run,it assumes the price level adjusts to bring the money market to equilibrium. 
D) long run,it assumes the interest rate adjusts to bring the money market to equilibrium.

Question 9

If the interest rate is below the Fed's target,the Fed should

Accepted Answer

A) buy bonds to increase bank reserves. 
B) buy bonds to decrease bank reserves. 
C) sell bonds to increase bank reserves. 
D) sell bonds to decrease bank reserves. 
A) buy bonds to increase bank reserves. 
B) buy bonds to decrease bank reserves. 
C) sell bonds to increase bank reserves. 
D) sell bonds to decrease bank reserves.

Question 10

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,and suppose r1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct?

Accepted Answer

A) When r = r2,nominal output is higher than it is when r = r1. 
B) When r = r2,real output is higher than it is when r = r1. 
C) When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D) If the velocity of money is 4 when r = r2,then the quantity of money is $3,000. 
A) When r = r2,nominal output is higher than it is when r = r1. 
B) When r = r2,real output is higher than it is when r = r1. 
C) When r = r2,the expected rate of inflation is higher than it is when r = r1. 
D) If the velocity of money is 4 when r = r2,then the quantity of money is $3,000.

Question 11

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.If the money-supply curve MS on the left-hand graph were to shift to the left,this would

Accepted Answer

A) represent an action taken by the Federal Reserve. 
B) shift the AD curve to the left. 
C) create,until the interest rate adjusted,an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D) All of the above are correct. 
A) represent an action taken by the Federal Reserve. 
B) shift the AD curve to the left. 
C) create,until the interest rate adjusted,an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D) All of the above are correct.

Question 12

Which particular interest rate(s)do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A) only the nominal interest rate 
B) both the nominal interest rate and the real interest rate 
C) only the interest rate on long-term bonds 
D) only the interest rate on short-term government bonds 
A) only the nominal interest rate 
B) both the nominal interest rate and the real interest rate 
C) only the interest rate on long-term bonds 
D) only the interest rate on short-term government bonds

Question 13

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A) the demand-for-money curve is vertical. 
B) the supply-of-money curve is vertical. 
C) the interest rate is measured along the horizontal axis. 
D) the price level is measured along the vertical axis. 
A) the demand-for-money curve is vertical. 
B) the supply-of-money curve is vertical. 
C) the interest rate is measured along the horizontal axis. 
D) the price level is measured along the vertical axis.

Question 14

Other things the same,as the price level rises,

Accepted Answer

A) the interest rate rises causing aggregate demand to shift. 
B) the interest rate rises causing a movement along a given aggregate-demand curve. 
C) the interest rate falls causing aggregate demand to shift. 
D) the interest rate falls causing a movement along a given aggregate-demand curve. 
A) the interest rate rises causing aggregate demand to shift. 
B) the interest rate rises causing a movement along a given aggregate-demand curve. 
C) the interest rate falls causing aggregate demand to shift. 
D) the interest rate falls causing a movement along a given aggregate-demand curve.

Question 15

According to liquidity preference theory,the money-supply curve is

Accepted Answer

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

Question 16

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

Accepted Answer

A) interest rate and investment to rise. 
B) interest rate and investment to fall. 
C) interest rate to rise and investment to fall. 
D) interest rate to fall and investment to rise. 
A) interest rate and investment to rise. 
B) interest rate and investment to fall. 
C) interest rate to rise and investment to fall. 
D) interest rate to fall and investment to rise.

Question 17

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A) firms may believe the relative price of their output has risen. 
B) real wealth declines. 
C) the interest rate increases. 
D) the exchange rate increases. 
A) firms may believe the relative price of their output has risen. 
B) real wealth declines. 
C) the interest rate increases. 
D) the exchange rate increases.

Question 18

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A) r = 0.03,P = 1.2 
B) r = 0.03,P = 1.3 
C) r = 0.04,P = 1.2 
D) r = 0.05,P = 0.9 
A) r = 0.03,P = 1.2 
B) r = 0.03,P = 1.3 
C) r = 0.04,P = 1.2 
D) r = 0.05,P = 0.9

Question 19

According to the theory of liquidity preference,if output decreases

Accepted Answer

A) people want to hold more money.This response is shown as a movement along the money demand curve. 
B) people want to hold more money.This response is shown as a shift of the money demand curve. 
C) people want to hold less money.This response is shown as a movement along the money demand curve. 
D) people want to hold less money.This response is shown as a shift of the money demand curve. 
A) people want to hold more money.This response is shown as a movement along the money demand curve. 
B) people want to hold more money.This response is shown as a shift of the money demand curve. 
C) people want to hold less money.This response is shown as a movement along the money demand curve. 
D) people want to hold less money.This response is shown as a shift of the money demand curve.

Question 20

If the Fed conducts open-market sales,which of the following quantities increase(s)?

Accepted Answer

A) interest rates,prices,and investment spending 
B) interest rates and prices,but not investment spending 
C) interest rates and investment,but not prices 
D) interest rates,but not investment or prices 
A) interest rates,prices,and investment spending 
B) interest rates and prices,but not investment spending 
C) interest rates and investment,but not prices 
D) interest rates,but not investment or prices

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

If the stock market booms,then

The Federal Funds rate is the interest rate

Changes in the interest rate

Liquidity preference theory is most relevant to the

If the Fed conducts open-market sales,the money supply

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Because the liquidity-preference framework focuses on the

If the interest rate is below the Fed's target,the Fed should

Which particular interest rate(s)do we attempt to explain using the theory of liquidity preference?

On the graph that depicts the theory of liquidity preference,

Other things the same,as the price level rises,

According to liquidity preference theory,the money-supply curve is

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

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

In which of the following cases would the quantity of money demanded be largest?

According to the theory of liquidity preference,if output decreases

If the Fed conducts open-market sales,which of the following quantities increase(s)?

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

Measuring a Nations Income