Question 1

Which of the following shifts aggregate demand to the left?

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

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory. 
A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory.

Question 3

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 4

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 5

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Accepted Answer

A)  $151.25. 
B)  $166.75. 
C)  $170.20. 
D)  $175.00. 
A)  $151.25. 
B)  $166.75. 
C)  $170.20. 
D)  $175.00.

Question 6

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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 7

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 8

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Accepted Answer

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

Question 9

If taxes

Accepted Answer

A)  increase, then consumption increases, and aggregate demand shifts rightward. 
B)  increase, then consumption decreases, and aggregate demand shifts leftward. 
C)  decrease, then consumption increases, and aggregate demand shifts leftward. 
D)  decrease, then consumption decreases, and aggregate demand shifts rightward. 
A)  increase, then consumption increases, and aggregate demand shifts rightward. 
B)  increase, then consumption decreases, and aggregate demand shifts leftward. 
C)  decrease, then consumption increases, and aggregate demand shifts leftward. 
D)  decrease, then consumption decreases, and aggregate demand shifts rightward.

Question 10

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

Question 11

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve 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

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Accepted Answer

A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply. 
A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply.

Question 13

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending. 
A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending.

Question 14

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

Question 15

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int

Question 16

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 17

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.

Question 18

"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 19

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 20

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.

Which of the following shifts aggregate demand to the left?

The theory of liquidity preference is most helpful in understanding

The Fed can influence the money supply by

Changes in the interest rate

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

If taxes

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

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Which of the following correctly explains the crowding-out effect?

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

On the graph that depicts the theory of liquidity preference,

Suppose investment spending falls. To offset the change in output the Federal Reserve could

"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

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

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

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 shifts aggregate demand to the left?

The theory of liquidity preference is most helpful in understanding

The Fed can influence the money supply by

Changes in the interest rate

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

If taxes

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

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Which of the following correctly explains the crowding-out effect?

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

On the graph that depicts the theory of liquidity preference,

Suppose investment spending falls. To offset the change in output the Federal Reserve could

"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

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

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

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