Question 1

If there is excess demand for money, then people will

Accepted Answer

A)  deposit more money into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts, and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts, and the interest rate will rise. 
A)  deposit more money into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts, and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 2

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate. 
A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate.

Question 3

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply 
A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply

Question 4

Supply-side economists focus more than other economists on

Accepted Answer

A)  how fiscal policy affects consumption. 
B)  the multiplier effect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply. 
A)  how fiscal policy affects consumption. 
B)  the multiplier effect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply.

Question 5

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct for the short run?

Accepted Answer

A)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
A)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

Question 7

To reduce aggregate demand, the government may reduce or increase .

Accepted Answer

government

Question 8

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator

Question 9

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 10

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 11

According to liquidity preference theory, a decrease 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 12

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 13

Because the liquidity-preference framework focuses on the

Accepted Answer

A)  short run, it assumes the price level adjusts to bring the money market to equilibrium. 
B)  short run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
C)  long run, it assumes the price level adjusts to bring the money market to equilibrium. 
D)  long run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
A)  short run, it assumes the price level adjusts to bring the money market to equilibrium. 
B)  short run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
C)  long run, it assumes the price level adjusts to bring the money market to equilibrium. 
D)  long run, it assumes the interest rate adjusts to bring the money market to equilibrium.

Question 14

If taxes

Accepted Answer

A)  increase, then consumption increases, and aggregate demand shifts leftward. 
B)  increase, then consumption decreases, and aggregate demand shifts rightward. 
C)  decrease, then consumption increases, and aggregate demand shifts rightward. 
D)  decrease, then consumption decreases, and aggregate demand shifts leftward. 
A)  increase, then consumption increases, and aggregate demand shifts leftward. 
B)  increase, then consumption decreases, and aggregate demand shifts rightward. 
C)  decrease, then consumption increases, and aggregate demand shifts rightward. 
D)  decrease, then consumption decreases, and aggregate demand shifts leftward.

Question 15

Which of the following events would shift money demand to the left?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 16

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

increase t

Question 17

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 18

Figure 34-2. 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 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?

Accepted Answer

A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000. 
A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.

Question 19

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent. 
A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent.

Question 20

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)  liquidity preference. 
B)  liquidity trap. 
C)  open-market trap. 
D)  interest-rate contraction. 
A)  liquidity preference. 
B)  liquidity trap. 
C)  open-market trap. 
D)  interest-rate contraction.

If there is excess demand for money, then people will

The theory of liquidity preference illustrates the principle that

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Supply-side economists focus more than other economists on

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Which of the following statements is correct for the short run?

To reduce aggregate demand, the government may reduce or increase .

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

According to liquidity preference theory, a decrease in the price level causes the interest rate to

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Because the liquidity-preference framework focuses on the

If taxes

Which of the following events would shift money demand to the left?

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

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 there is excess demand for money, then people will

The theory of liquidity preference illustrates the principle that

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Supply-side economists focus more than other economists on

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Which of the following statements is correct for the short run?

To reduce aggregate demand, the government may reduce or increase .

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

According to liquidity preference theory, a decrease in the price level causes the interest rate to

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Because the liquidity-preference framework focuses on the

If taxes

Which of the following events would shift money demand to the left?

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

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