Question 1

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator

Question 2

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 3

Figure 16-1
  
-Refer to Figure 16-1. Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

Question 4

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)  neither the level of output nor the level of prices. 
B)  the level of output, but not in the level of prices. 
C)  the level of prices, but not in the level of output. 
D)  the level of output and in the level of prices. 
A)  neither the level of output nor the level of prices. 
B)  the level of output, but not in the level of prices. 
C)  the level of prices, but not in the level of output. 
D)  the level of output and in the level of prices.

Question 5

If the Federal Reserve decided to lower interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 6

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Accepted Answer

A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect. 
A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect.

Question 7

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct. 
A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct.

Question 8

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 9

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) . 
A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) .

Question 10

Figure 16-2. 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 16-2. 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 11

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 12

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/MPC. 
B)  1/(1 - MP
C) . 
C)  MPC/(1 - MP
C) . 
D)  (1 - MP
C) /MPC. 
A)  1/MPC. 
B)  1/(1 - MP
C) . 
C)  MPC/(1 - MP
C) . 
D)  (1 - MP
C) /MPC.

Question 13

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect, exchange-rate effect, interest-rate effect 
B)  exchange-rate effect, interest-rate effect, wealth effect 
C)  interest-rate effect, wealth effect, exchange-rate effect 
D)  interest-rate effect, exchange-rate effect, wealth effect 
A)  wealth effect, exchange-rate effect, interest-rate effect 
B)  exchange-rate effect, interest-rate effect, wealth effect 
C)  interest-rate effect, wealth effect, exchange-rate effect 
D)  interest-rate effect, exchange-rate effect, wealth effect

Question 14

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 15

A decrease in government spending

Accepted Answer

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

Question 16

According to the theory of liquidity preference, a decrease 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

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
  
-Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing 
A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing

Question 18

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand. 
A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand.

Question 19

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

Accepted Answer

A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded. 
A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded.

Question 20

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Which of the following effects results from the change in the interest rate created by an increase in government spending?

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 16-1 -Refer to Figure 16-1. Which of the following is correct?

Shifts in the aggregate-demand curve can cause fluctuations in

If the Federal Reserve decided to lower interest rates, it could

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Other things equal, the higher the price level, the higher is the real wealth of households.

The multiplier for changes in government spending is calculated as

When the Fed decreases the money supply, we expect

The multiplier for changes in government spending is calculated as

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

A decrease in government spending

According to the theory of liquidity preference, a decrease in the price level causes the

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

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

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

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

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which of the following effects results from the change in the interest rate created by an increase in government spending?

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 16-1 -Refer to Figure 16-1. Which of the following is correct?

Shifts in the aggregate-demand curve can cause fluctuations in

If the Federal Reserve decided to lower interest rates, it could

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Other things equal, the higher the price level, the higher is the real wealth of households.

The multiplier for changes in government spending is calculated as

When the Fed decreases the money supply, we expect

The multiplier for changes in government spending is calculated as

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

A decrease in government spending

According to the theory of liquidity preference, a decrease in the price level causes the

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

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

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

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

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?