Question 1

Which of the following statements is correct?

Accepted Answer

A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium. 
A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.

Question 2

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar. 
A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar.

Question 3

Other things the same, as the price level rises,

Accepted Answer

A)  the interest rate rises causing aggregate demand to shift. 
B)  the interest rate rises causing a movement along a given aggregate-demand curve. 
C)  the interest rate falls causing aggregate demand to shift. 
D)  the interest rate falls causing a movement along a given aggregate-demand curve. 
A)  the interest rate rises causing aggregate demand to shift. 
B)  the interest rate rises causing a movement along a given aggregate-demand curve. 
C)  the interest rate falls causing aggregate demand to shift. 
D)  the interest rate falls causing a movement along a given aggregate-demand curve.

Question 4

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 5

According to the theory of liquidity preference,

Accepted Answer

A)  if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B)  if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C)  the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D)  All of the above are correct. 
A)  if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B)  if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C)  the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D)  All of the above are correct.

Question 6

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 7

Macroeconomic forecasts are

Accepted Answer

A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant. 
A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant.

Question 8

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor

Question 9

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 10

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 11

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)  the Federal Reserve would have less reason than it has now to monitor stock prices. 
B)  it would be more desirable than it is now for the Federal Reserve to target an interest rate. 
C)  a strict balanced-budget rule would be more desirable than it is now. 
D)  output and employment would probably be more volatile than they are now. 
A)  the Federal Reserve would have less reason than it has now to monitor stock prices. 
B)  it would be more desirable than it is now for the Federal Reserve to target an interest rate. 
C)  a strict balanced-budget rule would be more desirable than it is now. 
D)  output and employment would probably be more volatile than they are now.

Question 12

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels.

Question 13

Figure 16-5. On the figure, MS represents money supply and MD represents money demand.
  
-Refer to Figure 16-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct. 
A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct.

Question 14

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures

Question 15

The Employment Act of 1946 states that

Accepted Answer

A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct. 
A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct.

Question 16

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

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 17

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

Accepted Answer

A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate. 
A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate.

Question 18

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct. 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  None of the above is correct.

Question 19

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 20

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct. 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct.

Which of the following statements is correct?

An increase in the U.S. interest rate

Other things the same, as the price level rises,

Which of the following is correct?

According to the theory of liquidity preference,

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Macroeconomic forecasts are

Explain how unemployment insurance acts as an automatic stabilizer.

Shifts in aggregate demand affect the price level in

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

If it were not for the automatic stabilizers in the U.S. economy,

Which of the following illustrates how the investment accelerator works?

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Which of the following events shifts aggregate demand rightward?

The Employment Act of 1946 states that

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

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

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Both monetary policy and fiscal policy affect aggregate demand.

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

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

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

Which of the following statements is correct?

An increase in the U.S. interest rate

Other things the same, as the price level rises,

Which of the following is correct?

According to the theory of liquidity preference,

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Macroeconomic forecasts are

Explain how unemployment insurance acts as an automatic stabilizer.

Shifts in aggregate demand affect the price level in

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

If it were not for the automatic stabilizers in the U.S. economy,

Which of the following illustrates how the investment accelerator works?

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Which of the following events shifts aggregate demand rightward?

The Employment Act of 1946 states that

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

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

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Both monetary policy and fiscal policy affect aggregate demand.

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

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 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?