Question 1

The wealth effect stems from the idea that a higher price level

Accepted Answer

A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets. 
A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets.

Question 2

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A)  smaller in closed economies than in open economies. 
B)  larger in closed economies than in open economies. 
C)  smaller in capitalist economies than in socialist economies. 
D)  larger in capitalist economies than in socialist economies. 
A)  smaller in closed economies than in open economies. 
B)  larger in closed economies than in open economies. 
C)  smaller in capitalist economies than in socialist economies. 
D)  larger in capitalist economies than in socialist economies.

Question 3

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 4

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply 
A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply

Question 5

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded. 
A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded.

Question 7

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases. 
A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases.

Question 8

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 9

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 10

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 11

People will want to hold less money if the price level

Accepted Answer

A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 12

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)  $216 billion. 
B)  $150 billion. 
C)  $600 billion. 
D)  $480 billion. 
A)  $216 billion. 
B)  $150 billion. 
C)  $600 billion. 
D)  $480 billion.

Question 13

When the interest rate is above the equilibrium level,

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct. 
A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct.

Question 14

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 15

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 16

If the multiplier is 6, then the MPC is

Accepted Answer

A)  0.16. 
B)  0.83. 
C)  0.71. 
D)  0.86. 
A)  0.16. 
B)  0.83. 
C)  0.71. 
D)  0.86.

Question 17

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion. 
A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion.

Question 18

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 19

When there is an excess supply of money,

Accepted Answer

A)  people will try to get rid of money causing interest rates to rise. Investment increases. 
B)  people will try to get rid of money causing interest rates to fall. Investment decreases. 
C)  people will try to get rid of money causing interest rates to fall. Investment increases. 
D)  people will try to get rid of money causing interest rates to rise. Investment decreases. 
A)  people will try to get rid of money causing interest rates to rise. Investment increases. 
B)  people will try to get rid of money causing interest rates to fall. Investment decreases. 
C)  people will try to get rid of money causing interest rates to fall. Investment increases. 
D)  people will try to get rid of money causing interest rates to rise. Investment decreases.

Question 20

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

The wealth effect stems from the idea that a higher price level

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Which of the following shifts aggregate demand to the left?

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

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

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

People will want to hold less money if the price level

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

When the interest rate is above the equilibrium level,

Permanent tax cuts shift the AD curve

The is the most important automatic stabilizer.

If the multiplier is 6, then the MPC is

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

When there is an excess supply of money,

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

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 and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

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

The wealth effect stems from the idea that a higher price level

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Which of the following shifts aggregate demand to the left?

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

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

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

People will want to hold less money if the price level

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

When the interest rate is above the equilibrium level,

Permanent tax cuts shift the AD curve

The is the most important automatic stabilizer.

If the multiplier is 6, then the MPC is

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

When there is an excess supply of money,

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

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 and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.