Question 1

Changes in the interest rate help explain

Accepted Answer

A) only the slope of,not shifts of aggregate demand. 
B) only shifts of,not the slope of aggregate demand. 
C) both the slope of and shifts of aggregate demand. 
D) neither the slope nor shifts of aggregate demand. 
A) only the slope of,not shifts of aggregate demand. 
B) only shifts of,not the slope of aggregate demand. 
C) both the slope of and shifts of aggregate demand. 
D) neither the slope nor shifts of aggregate demand.

Question 2

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.What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A) the quantity of money 
B) the rate of inflation 
C) real output 
D) nominal output 
A) the quantity of money 
B) the rate of inflation 
C) real output 
D) nominal output

Question 3

For the U.S.economy,money holdings are a

Accepted Answer

A) large part of household wealth,and so the interest-rate effect is large. 
B) large part of household wealth,and so the wealth effect is large. 
C) small part of household wealth,and so the interest-rate effect is small. 
D) small part of household wealth,and so the wealth effect is small. 
A) large part of household wealth,and so the interest-rate effect is large. 
B) large part of household wealth,and so the wealth effect is large. 
C) small part of household wealth,and so the interest-rate effect is small. 
D) small part of household wealth,and so the wealth effect is small.

Question 4

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

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

Question 5

According to the interest-rate effect,an increase in the price level will

Accepted Answer

A) increase money demand and interest rates.Investment declines. 
B) increase money demand and interest rates.Investment increases. 
C) increase money demand,reduce interest rates,and investment increases. 
D) decrease money demand and interest rates.Investment declines. 
A) increase money demand and interest rates.Investment declines. 
B) increase money demand and interest rates.Investment increases. 
C) increase money demand,reduce interest rates,and investment increases. 
D) decrease money demand and interest rates.Investment declines.

Question 6

Figure 34-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4.Suppose the current equilibrium interest rate is r1.Let Y1 represent the corresponding quantity of goods and services demanded,and let P1 represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P1,then

Accepted Answer

A) there will be an increase in the equilibrium quantity of goods and services demanded. 
B) there will be a decrease in the equilibrium quantity of goods and services demanded. 
C) there will be an increase in the equilibrium interest rate. 
D) fewer firms will choose to borrow to build new factories and buy new equipment. 
A) there will be an increase in the equilibrium quantity of goods and services demanded. 
B) there will be a decrease in the equilibrium quantity of goods and services demanded. 
C) there will be an increase in the equilibrium interest rate. 
D) fewer firms will choose to borrow to build new factories and buy new equipment.

Question 7

Which of the following events would shift money demand to the left?

Accepted Answer

A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate,but not an increase in the price level 
C) an increase in the price level,but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level 
A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate,but not an increase in the price level 
C) an increase in the price level,but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level

Question 8

When households find themselves holding too much money,they respond by

Accepted Answer

A) purchasing interest-earning financial assets and interest rates fall. 
B) purchasing interest-earning financial assets and interest rates rise. 
C) holding the extra money and interest rates rise. 
D) selling interest-earning financial assets,which eliminates the excess supply of money. 
A) purchasing interest-earning financial assets and interest rates fall. 
B) purchasing interest-earning financial assets and interest rates rise. 
C) holding the extra money and interest rates rise. 
D) selling interest-earning financial assets,which eliminates the excess supply of money.

Question 9

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A) When interest rates fall,In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls,so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract,Fargo Concrete Company decides to lay off workers. 
A) When interest rates fall,In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls,so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract,Fargo Concrete Company decides to lay off workers.

Question 10

Figure 34-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A) The Federal Reserve increases the money supply. 
B) Money demand increases. 
C) The price level decreases. 
D) All of the above are correct. 
A) The Federal Reserve increases the money supply. 
B) Money demand increases. 
C) The price level decreases. 
D) All of the above are correct.

Question 11

Which of the following statements is correct for the short run?

Accepted Answer

A) Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds. 
B) Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
C) Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for money;the price level is relatively slow to adjust. 
D) Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
A) Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds. 
B) Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
C) Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for money;the price level is relatively slow to adjust. 
D) Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.

Question 12

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,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 13

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A) An increase in the price level decreases the interest rate. 
B) An increase in the price level increases the interest rate. 
C) An increase in the money supply decreases the interest rate. 
D) An increase in the money supply increases the interest rate. 
A) An increase in the price level decreases the interest rate. 
B) An increase in the price level increases the interest rate. 
C) An increase in the money supply decreases the interest rate. 
D) An increase in the money supply increases the interest rate.

Question 14

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 real interest rate is lower at Y2 than it is at Y1. 
B) the quantity of money is the same at Y1 as it is at Y2. 
C) the price level is lower at r2 than it is at r1. 
D) All of the above are correct. 
A) the real interest rate is lower at Y2 than it is at Y1. 
B) the quantity of money is the same at Y1 as it is at Y2. 
C) the price level is lower at r2 than it is at r1. 
D) All of the above are correct.

Question 15

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Accepted Answer

A) Your aunt puts more money in her savings account. 
B) Foreign citizens decide to buy fewer U.S.bonds. 
C) You decide to purchase a new oven for your cookie factory. 
D) All of the above are correct. 
A) Your aunt puts more money in her savings account. 
B) Foreign citizens decide to buy fewer U.S.bonds. 
C) You decide to purchase a new oven for your cookie factory. 
D) All of the above are correct.

Question 16

When the Fed buys government bonds,the reserves of the banking system

Accepted Answer

A) increase,so the money supply increases. 
B) increase,so the money supply decreases. 
C) decrease,so the money supply increases. 
D) decrease,so the money supply decreases. 
A) increase,so the money supply increases. 
B) increase,so the money supply decreases. 
C) decrease,so the money supply increases. 
D) decrease,so the money supply decreases.

Question 17

Other things the same,a decrease in the U.S.interest rate

Accepted Answer

A) induces firms to invest more. 
B) shifts money demand to the left. 
C) makes the U.S.dollar appreciate. 
D) increases the opportunity cost of holding dollars. 
A) induces firms to invest more. 
B) shifts money demand to the left. 
C) makes the U.S.dollar appreciate. 
D) increases the opportunity cost of holding dollars.

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.What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A) nominal output 
B) real output 
C) the opportunity cost of holding money 
D) the quantity of money 
A) nominal output 
B) real output 
C) the opportunity cost of holding money 
D) the quantity of money

Question 19

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

Accepted Answer

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

Question 20

If expected inflation is constant,then when the nominal interest rate falls,the real interest rate

Accepted Answer

A) falls by more than the change in the nominal interest rate. 
B) falls by the change in the nominal interest rate. 
C) rises by the change in the nominal interest rate. 
D) rises by more than the change in the nominal interest rate. 
A) falls by more than the change in the nominal interest rate. 
B) falls by the change in the nominal interest rate. 
C) rises by the change in the nominal interest rate. 
D) rises by more than the change in the nominal interest rate.

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

Changes in the interest rate help explain

For the U.S.economy,money holdings are a

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

According to the interest-rate effect,an increase in the price level will

Which of the following events would shift money demand to the left?

When households find themselves holding too much money,they respond by

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

Which of the following statements is correct for the short run?

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

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

When the Fed buys government bonds,the reserves of the banking system

Other things the same,a decrease in the U.S.interest rate

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

If expected inflation is constant,then when the nominal interest rate falls,the real interest rate

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

Measuring a Nations Income: The Economy's Income and Expenditure

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?