Question 1

If the interest rate is below the Fed's target, the Fed would

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 2

When the Fed increases the money supply, we expect

Accepted Answer

A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise. 
A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise.

Question 3

In the long run, changes in the money supply affect

Accepted Answer

A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above. 
A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above.

Question 4

When the Fed decreases the money supply, we expect

Accepted Answer

A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise. 
A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise.

Question 5

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates.

Question 6

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary,

Question 7

Figure 34-1  
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

Question 8

Other things the same, during recessions taxes tend to

Accepted Answer

A)  rise. The rise in taxes stimulates aggregate demand. 
B)  rise. The rise in taxes contracts aggregate demand. 
C)  fall. The fall in taxes stimulates aggregate demand. 
D)  fall. The fall in taxes contracts aggregate demand. 
A)  rise. The rise in taxes stimulates aggregate demand. 
B)  rise. The rise in taxes contracts aggregate demand. 
C)  fall. The fall in taxes stimulates aggregate demand. 
D)  fall. The fall in taxes contracts aggregate demand.

Question 9

Which of the following is an example of crowding out?

Accepted Answer

A)  An increase in government spending increases interest rates, causing investment to fall. 
B)  A decrease in private savings increases interest rates, causing investment to fall. 
C)  A decrease in the money supply increases interest rates, causing investment to fall. 
D)  An increase in taxes increases interest rates, causing investment to fall. 
A)  An increase in government spending increases interest rates, causing investment to fall. 
B)  A decrease in private savings increases interest rates, causing investment to fall. 
C)  A decrease in the money supply increases interest rates, causing investment to fall. 
D)  An increase in taxes increases interest rates, causing investment to fall.

Question 10

When government expenditures increase, the interest rate

Accepted Answer

A)  increases, making the change in aggregate demand larger. 
B)  increases, making the change in aggregate demand smaller 
C)  decreases, making the change in aggregate demand larger. 
D)  decreases, making the change in aggregate demand smaller. 
A)  increases, making the change in aggregate demand larger. 
B)  increases, making the change in aggregate demand smaller 
C)  decreases, making the change in aggregate demand larger. 
D)  decreases, making the change in aggregate demand smaller.

Question 11

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Accepted Answer

The answer of When the Federal Funds rate is above...

Question 12

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds. 
A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds.

Question 13

The opportunity cost of holding money

Accepted Answer

A)  decreases when the interest rate decreases, so people desire to hold more of it. 
B)  decreases when the interest rate decreases, so people desire to hold less of it. 
C)  increases when the interest rate decreases, so people desire to hold more of it. 
D)  increases when the interest rate decreases, so people desire to hold less of it. 
A)  decreases when the interest rate decreases, so people desire to hold more of it. 
B)  decreases when the interest rate decreases, so people desire to hold less of it. 
C)  increases when the interest rate decreases, so people desire to hold more of it. 
D)  increases when the interest rate decreases, so people desire to hold less of it.

Question 14

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect

Question 15

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. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 16

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)  rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B)  rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C)  leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D)  leftward. In an attempt to stabilize the economy, the government could decrease expenditures. 
A)  rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B)  rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C)  leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D)  leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Question 17

Assume the MPC is 0.72. The multiplier is

Accepted Answer

A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57. 
A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57.

Question 18

When the government reduces taxes, which of the following decreases?

Accepted Answer

A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct. 
A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct.

Question 19

When the interest rate is below the equilibrium level,

Accepted Answer

A)  the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from 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 the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from 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 20

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)  only aggregate demand. 
B)  only aggregate supply. 
C)  both aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply. 
A)  only aggregate demand. 
B)  only aggregate supply. 
C)  both aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply.

If the interest rate is below the Fed's target, the Fed would

When the Fed increases the money supply, we expect

In the long run, changes in the money supply affect

When the Fed decreases the money supply, we expect

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Other things the same, during recessions taxes tend to

Which of the following is an example of crowding out?

When government expenditures increase, the interest rate

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

According to liquidity preference theory, the opportunity cost of holding money is

The opportunity cost of holding money

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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. Which of the following events would cause the equilibrium interest rate to decrease?

A reduction in U.S net exports would shift U.S. aggregate demand

Assume the MPC is 0.72. The multiplier is

When the government reduces taxes, which of the following decreases?

When the interest rate is below the equilibrium level,

Supply-side economists believe that changes in government purchases affect

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

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

If the interest rate is below the Fed's target, the Fed would

When the Fed increases the money supply, we expect

In the long run, changes in the money supply affect

When the Fed decreases the money supply, we expect

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Other things the same, during recessions taxes tend to

Which of the following is an example of crowding out?

When government expenditures increase, the interest rate

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

According to liquidity preference theory, the opportunity cost of holding money is

The opportunity cost of holding money

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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. Which of the following events would cause the equilibrium interest rate to decrease?

A reduction in U.S net exports would shift U.S. aggregate demand

Assume the MPC is 0.72. The multiplier is

When the government reduces taxes, which of the following decreases?

When the interest rate is below the equilibrium level,

Supply-side economists believe that changes in government purchases affect

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

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.