Question 1

An increase in government spending shifts aggregate demand

Accepted Answer

A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts. 
A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts.

Question 2

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Accepted Answer

A)  the equilibrium interest rate decreases. 
B)  the aggregate-demand curve shifts to the left. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the long-run aggregate-supply curve shifts to the right. 
A)  the equilibrium interest rate decreases. 
B)  the aggregate-demand curve shifts to the left. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the long-run aggregate-supply curve shifts to the right.

Question 3

People are likely to want to hold more money if the interest rate

Accepted Answer

A)  increases, making the opportunity cost of holding money rise. 
B)  increases, making the opportunity cost of holding money fall. 
C)  decreases, making the opportunity cost of holding money rise. 
D)  decreases, making the opportunity cost of holding money fall. 
A)  increases, making the opportunity cost of holding money rise. 
B)  increases, making the opportunity cost of holding money fall. 
C)  decreases, making the opportunity cost of holding money rise. 
D)  decreases, making the opportunity cost of holding money fall.

Question 4

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases. 
A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases.

Question 5

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A)  MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B)  MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C)  MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D)  All of the above are correct. 
A)  MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B)  MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C)  MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D)  All of the above are correct.

Question 6

The short-run effects on the interest rate are

Accepted Answer

A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory. 
A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory.

Question 7

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)  0.75 and the multiplier is 1 1/3. 
B)  0.75 and the multiplier is 4. 
C)  0.25 and the multiplier is 1 1/3. 
D)  0.25 and the multiplier is 4. 
A)  0.75 and the multiplier is 1 1/3. 
B)  0.75 and the multiplier is 4. 
C)  0.25 and the multiplier is 1 1/3. 
D)  0.25 and the multiplier is 4.

Question 8

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 r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, 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 quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
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 quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 9

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 10

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)  The price level rises, causing the interest rate to fall. 
B)  The price level falls, causing the interest rate to fall. 
C)  The money supply increases, causing the interest rate to fall. 
D)  The money supply decreases, causing the interest rate to fall. 
A)  The price level rises, causing the interest rate to fall. 
B)  The price level falls, causing the interest rate to fall. 
C)  The money supply increases, causing the interest rate to fall. 
D)  The money supply decreases, causing the interest rate to fall.

Question 11

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. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect. 
A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect.

Question 12

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Accepted Answer

A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00. 
A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00.

Question 13

Critics of stabilization policy argue that

Accepted Answer

A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand. 
A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand.

Question 14

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Accepted Answer

A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct. 
A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct.

Question 15

Changes in the interest rate help explain

Accepted Answer

A)  only the slope of, not shifts of aggregate demand. 
B)  only shifts of, not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand. 
A)  only the slope of, not shifts of aggregate demand. 
B)  only shifts of, not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand.

Question 16

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

As income rises

Accepted Answer

A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls. 
A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls.

Question 18

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 19

In the short run, a decrease in the money supply causes interest rates to

Accepted Answer

A)  increase, and aggregate demand to shift right. 
B)  increase, and aggregate demand to shift left. 
C)  decrease, and aggregate demand to shift right. 
D)  decrease, and aggregate demand to shift left. 
A)  increase, and aggregate demand to shift right. 
B)  increase, and aggregate demand to shift left. 
C)  decrease, and aggregate demand to shift right. 
D)  decrease, and aggregate demand to shift left.

Question 20

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve. 
A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve.

An increase in government spending shifts aggregate demand

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

People are likely to want to hold more money if the interest rate

When the Fed sells government bonds, the reserves of the banking system

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

The short-run effects on the interest rate are

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

In which of the following cases does the aggregate-demand curve shift to the right?

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Critics of stabilization policy argue that

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Changes in the interest rate help explain

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

As income rises

How does a reduction in the money supply by the Fed make owning stocks less attractive?

In the short run, a decrease in the money supply causes interest rates to

The theory of liquidity preference assumes that the nominal supply of money is determined by 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

An increase in government spending shifts aggregate demand

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

People are likely to want to hold more money if the interest rate

When the Fed sells government bonds, the reserves of the banking system

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

The short-run effects on the interest rate are

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

In which of the following cases does the aggregate-demand curve shift to the right?

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Critics of stabilization policy argue that

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Changes in the interest rate help explain

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

As income rises

How does a reduction in the money supply by the Fed make owning stocks less attractive?

In the short run, a decrease in the money supply causes interest rates to

The theory of liquidity preference assumes that the nominal supply of money is determined by 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