Question 1

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

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 2

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need

Question 3

Which among the following assets is the most liquid?

Accepted Answer

A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  shares of stock 
A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  shares of stock

Question 4

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Figure 16-7.
  
-Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

A)  an increase in the money supply. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  All of the above are correct. 
A)  an increase in the money supply. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  All of the above are correct.

Question 6

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct. 
A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct.

Question 7

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

Accepted Answer

A)  $384. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. 
B)  $384. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand. 
C)  $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. 
D)  $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand. 
A)  $384. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. 
B)  $384. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand. 
C)  $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. 
D)  $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand.

Question 8

If the inflation rate is zero, then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 9

People choose to hold a smaller quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall. 
A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.

Question 10

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 11

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 12

If the stock market crashes, then

Accepted Answer

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

Question 13

When there is an increase in government expenditures, which of the following raises investment 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 the investment accelerator or crowding out 
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 the investment accelerator or crowding out

Question 14

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. 
B)  depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. 
C)  is responsible for the downward slope of the money-demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. 
A)  depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. 
B)  depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. 
C)  is responsible for the downward slope of the money-demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

Question 15

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 17

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin 
A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin

Question 18

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

Accepted Answer

A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase. 
A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase.

Question 19

If the MPC = 0.85, then the government purchases multiplier is about

Accepted Answer

A)  1.18. 
B)  3.33. 
C)  6.67. 
D)  8.5. 
A)  1.18. 
B)  3.33. 
C)  6.67. 
D)  8.5.

Question 20

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.

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

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Which among the following assets is the most liquid?

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Figure 16-7. -Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

If the inflation rate is zero, then the nominal and real interest rate are the same.

People choose to hold a smaller quantity of money if

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

During recessions, unemployment insurance payments tend to rise.

If the stock market crashes, then

When there is an increase in government expenditures, which of the following raises investment spending?

The interest-rate effect

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

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

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

If the MPC = 0.85, then the government purchases multiplier is about

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

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 events would shift money demand to the right?

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Which among the following assets is the most liquid?

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Figure 16-7. -Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

If the inflation rate is zero, then the nominal and real interest rate are the same.

People choose to hold a smaller quantity of money if

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

During recessions, unemployment insurance payments tend to rise.

If the stock market crashes, then

When there is an increase in government expenditures, which of the following raises investment spending?

The interest-rate effect

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

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

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

If the MPC = 0.85, then the government purchases multiplier is about

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

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