Question 1

In the long run, fiscal policy influences

Accepted Answer

A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function. 
A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.

Question 2

Figure 16-7.
  
-Refer to Figure 16-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level. 
A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level.

Question 3

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.

Question 4

Scenario 16-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $5,200 when income is $8,000.
• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 16-2. For this economy, an initial increase of $500 in government purchases translates into a

Accepted Answer

A)  $1,428.57 increase in aggregate demand in the absence of the crowding-out effect. 
B)  $3,125.00 increase in aggregate demand in the absence of the crowding-out effect. 
C)  $1,428.57 increase in aggregate demand when the crowding-out effect is taken into account. 
D)  $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account. 
A)  $1,428.57 increase in aggregate demand in the absence of the crowding-out effect. 
B)  $3,125.00 increase in aggregate demand in the absence of the crowding-out effect. 
C)  $1,428.57 increase in aggregate demand when the crowding-out effect is taken into account. 
D)  $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.

Question 5

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts. 
A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts.

Question 6

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Accepted Answer

A)  Dwight D. Eisenhower 
B)  John F. Kennedy 
C)  Ronald Reagan 
D)  Bill Clinton 
A)  Dwight D. Eisenhower 
B)  John F. Kennedy 
C)  Ronald Reagan 
D)  Bill Clinton

Question 7

Figure 16-1
  
-Refer to Figure 16-1. There is an excess demand for money at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 8

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts. 
A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts.

Question 9

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion. 
A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion.

Question 10

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 11

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

Accepted Answer

A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0 
A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0

Question 12

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not. 
A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not.

Question 13

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, 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 14

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  None of the above is correct. 
A)  a decrease in the money supply 
B)  a reduction in tax rates 
C)  a decrease in government purchases 
D)  None of the above is correct.

Question 15

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)  The actual MPC was larger than the MPC the aide used to compute the multiplier. 
B)  The aide thought the tax cut would be permanent, but the actual tax cut was temporary. 
C)  The increase in income shifted money demand less than the aide had anticipated. 
D)  The increase in income resulted in investment rising more than the aide had anticipated. 
A)  The actual MPC was larger than the MPC the aide used to compute the multiplier. 
B)  The aide thought the tax cut would be permanent, but the actual tax cut was temporary. 
C)  The increase in income shifted money demand less than the aide had anticipated. 
D)  The increase in income resulted in investment rising more than the aide had anticipated.

Question 16

Which of the following sequences best represents the crowding-out effect?

Accepted Answer

A)  government purchases $\uparrow$$\Rightarrow$GDP $\uparrow$$\Rightarrow$supply of money $\downarrow$
$\Rightarrow$equilibrium interest rate $\uparrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
B)  government purchases $\downarrow$$\Rightarrow$GDP $\downarrow$$\Rightarrow$demand for money $\downarrow$
$\Rightarrow$equilibrium interest rate $\downarrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
C)  government purchases $\uparrow$$\Rightarrow$GDP $\uparrow$$\Rightarrow$demand for money $\uparrow$
$\Rightarrow$equilibrium interest rate $\uparrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
D)  taxes $\uparrow$$\Rightarrow$GDP $\downarrow$$\Rightarrow$demand for money $\downarrow$$\Rightarrow$equilibrium interest rate $\uparrow$
$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
A)  government purchases $\uparrow$$\Rightarrow$GDP $\uparrow$$\Rightarrow$supply of money $\downarrow$
$\Rightarrow$equilibrium interest rate $\uparrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
B)  government purchases $\downarrow$$\Rightarrow$GDP $\downarrow$$\Rightarrow$demand for money $\downarrow$
$\Rightarrow$equilibrium interest rate $\downarrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
C)  government purchases $\uparrow$$\Rightarrow$GDP $\uparrow$$\Rightarrow$demand for money $\uparrow$
$\Rightarrow$equilibrium interest rate $\uparrow$$\Rightarrow$quantity of goods and services demanded $\downarrow$ 
D)  taxes $\uparrow$$\Rightarrow$GDP $\downarrow$$\Rightarrow$demand for money $\downarrow$$\Rightarrow$equilibrium interest rate $\uparrow$
$\Rightarrow$quantity of goods and services demanded $\downarrow$

Question 17

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Accepted Answer

A) True 
 B)False

Question 18

Suppose stock prices rise. To offset the resulting 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 rise in stock prices. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices. 
A)  increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices.

Question 19

Assume the following. • The MPC has a value of 0.8.
• The relationship between the interest rate, r, and investment, I, is given by the equation, , where b is a positive constant.
  • Government purchases, G, are increased by $1,000.
In which of the following cases would there be no crowding out?

Accepted Answer

A)  b=0 
B)  b=0.2 
C)  b=0.8 
D)  b= 1 
A)  b=0 
B)  b=0.2 
C)  b=0.8 
D)  b= 1

Question 20

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

Accepted Answer

A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases. 
A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases.

In the long run, fiscal policy influences

Figure 16-7. -Refer to Figure 16-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

Which of the following properly describes the interest-rate effect?

Scenario 16-2. The following facts apply to a small, imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 16-2. For this economy, an initial increase of $500 in government purchases translates into a

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Figure 16-1 -Refer to Figure 16-1. There is an excess demand for money at an interest rate of

Permanent tax cuts shift the AD curve

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

The interest rate falls if

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

In recent years, the Fed has chosen to target interest rates rather than the money supply because

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Which of the following sequences best represents the crowding-out effect?

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

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

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

In the long run, fiscal policy influences

Figure 16-7. -Refer to Figure 16-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Which of the following properly describes the interest-rate effect?

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Figure 16-1 -Refer to Figure 16-1. There is an excess demand for money at an interest rate of

Permanent tax cuts shift the AD curve

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

The interest rate falls if

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

In recent years, the Fed has chosen to target interest rates rather than the money supply because

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Which of the following sequences best represents the crowding-out effect?

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

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

Figure 16-7. -Refer to Figure 16-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of