Question 1

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

Accepted Answer

A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession. 
A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession.

Question 2

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate. 
A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate.

Question 3

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct. 
A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct.

Question 4

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds. 
A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds.

Question 5

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect 
A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect

Question 6

Consider the following sequence of events: price level $\uparrow$$\Rightarrow$demand for money $\uparrow$$\Rightarrow$equilibrium interest rate $\uparrow$
$\Rightarrow$quantity of goods and services demanded $\downarrow$
 This sequence explains why the

Accepted Answer

A)  money-supply curve is vertical. 
B)  aggregate-demand curve shifts leftward in response to a monetary injection. 
C)  aggregate-demand curve shifts rightward in response to a monetary injection. 
D)  aggregate-demand curve slopes downward. 
A)  money-supply curve is vertical. 
B)  aggregate-demand curve shifts leftward in response to a monetary injection. 
C)  aggregate-demand curve shifts rightward in response to a monetary injection. 
D)  aggregate-demand curve slopes downward.

Question 7

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 8

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 9

In the long run, changes in the money supply affect

Accepted Answer

A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above. 
A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above.

Question 10

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left. 
A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left.

Question 11

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates.

Question 12

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)  the tax increase reduces consumption; the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption; the change in the interest rate raises residential construction 
C)  the tax increase raises consumption; the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption; the change in the interest rate reduces residential construction. 
A)  the tax increase reduces consumption; the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption; the change in the interest rate raises residential construction 
C)  the tax increase raises consumption; the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption; the change in the interest rate reduces residential construction.

Question 13

Opponents of active stabilization policy

Accepted Answer

A)  generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B)  generally agree that fiscal policy has no impact in the long run. 
C)  believe some effects of monetary policy may be long-lived. 
D)  think the Fed should simply try to fine tune the economy. 
A)  generally don't believe, even in theory, that fiscal policy can stabilize the economy. 
B)  generally agree that fiscal policy has no impact in the long run. 
C)  believe some effects of monetary policy may be long-lived. 
D)  think the Fed should simply try to fine tune the economy.

Question 14

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A)  has no affect on aggregate demand. 
B)  has more of an affect on aggregate demand than if households view it as permanent. 
C)  has the same affect as when households view the cut as permanent. 
D)  has less of an affect on aggregate demand than if households view it as permanent. 
A)  has no affect on aggregate demand. 
B)  has more of an affect on aggregate demand than if households view it as permanent. 
C)  has the same affect as when households view the cut as permanent. 
D)  has less of an affect on aggregate demand than if households view it as permanent.

Question 15

If the MPC is 2/3 then the multiplier is

Accepted Answer

A)  3/2, so a $100 increase in government spending increases aggregate demand by $150. 
B)  3/2, so a $100 increase in government spending increases aggregate supply by $150. 
C)  3, so a $100 increase in government spending increases aggregate demand by $300. 
D)  3, so a $100 increase in government spending increases aggregate supply by $300. 
A)  3/2, so a $100 increase in government spending increases aggregate demand by $150. 
B)  3/2, so a $100 increase in government spending increases aggregate supply by $150. 
C)  3, so a $100 increase in government spending increases aggregate demand by $300. 
D)  3, so a $100 increase in government spending increases aggregate supply by $300.

Question 16

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
  
-Refer to Figure 16-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 17

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.8, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion 
A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion

Question 18

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)  increase if there were a surplus in the money market. 
B)  increase if there were a shortage in the money market. 
C)  decrease if there were a surplus in the money market. 
D)  decrease if there were a shortage in the money market. 
A)  increase if there were a surplus in the money market. 
B)  increase if there were a shortage in the money market. 
C)  decrease if there were a surplus in the money market. 
D)  decrease if there were a shortage in the money market.

Question 19

Figure 16-3.
  
-Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)  consumption 
B)  investment 
C)  net exports 
D)  government spending 
A)  consumption 
B)  investment 
C)  net exports 
D)  government spending

Question 20

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct.

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

In recent years, the Federal Reserve has conducted policy by setting a target for the

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Consider the following sequence of events: price level $\uparrow$ $\Rightarrow$ demand for money $\uparrow$ $\Rightarrow$ equilibrium interest rate $\uparrow$ $\Rightarrow$ quantity of goods and services demanded $\downarrow$  This sequence explains why the

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Which of the following shifts aggregate demand to the right?

In the long run, changes in the money supply affect

According to liquidity preference theory, if the price level decreases, then

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Which of the following are effects of an increase in government spending financed by a tax increase?

Opponents of active stabilization policy

If households view a tax cut as temporary, then the tax cut

If the MPC is 2/3 then the multiplier is

The interest rate would fall and the quantity of money demanded would

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Which of the following shifts aggregate demand to the right?

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

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

In recent years, the Federal Reserve has conducted policy by setting a target for the

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Consider the following sequence of events: price level ↑\uparrow↑⇒\Rightarrow⇒ demand for money ↑\uparrow↑⇒\Rightarrow⇒ equilibrium interest rate ↑\uparrow↑ ⇒\Rightarrow⇒ quantity of goods and services demanded ↓\downarrow↓  This sequence explains why the

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Which of the following shifts aggregate demand to the right?

In the long run, changes in the money supply affect

According to liquidity preference theory, if the price level decreases, then

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Which of the following are effects of an increase in government spending financed by a tax increase?

Opponents of active stabilization policy

If households view a tax cut as temporary, then the tax cut

If the MPC is 2/3 then the multiplier is

The interest rate would fall and the quantity of money demanded would

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Which of the following shifts aggregate demand to the right?

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

Consider the following sequence of events: price level $\uparrow$ $\Rightarrow$ demand for money $\uparrow$ $\Rightarrow$ equilibrium interest rate $\uparrow$ $\Rightarrow$ quantity of goods and services demanded $\downarrow$  This sequence explains why the

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?