Question 1

The interest-rate effect

Accepted Answer

A)  depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B)  depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C)  is responsible for the downward slope of the money-demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve. 
A)  depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B)  depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C)  is responsible for the downward slope of the money-demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.

Question 2

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds 
A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds

Question 3

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 4

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 5

In the graph of the money market, the money supply curve is

Accepted Answer

A)  vertical. It shifts rightward if the Fed buys bonds. 
B)  vertical. It shifts rightward if the Fed sells bonds. 
C)  upward sloping. It shifts rightward if the Fed buys bonds. 
D)  upward sloping. It shifts rightward if the Fed sells bonds. 
A)  vertical. It shifts rightward if the Fed buys bonds. 
B)  vertical. It shifts rightward if the Fed sells bonds. 
C)  upward sloping. It shifts rightward if the Fed buys bonds. 
D)  upward sloping. It shifts rightward if the Fed sells bonds.

Question 6

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Accepted Answer

A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct. 
A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct.

Question 7

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level 
A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level

Question 9

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve

Question 10

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars. 
A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars.

Question 11

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left. 
A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left.

Question 12

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Question 13

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 14

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar. 
A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar.

Question 15

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 16

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds. 
A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds.

Question 17

Keynes argued that

Accepted Answer

A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct. 
A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct.

Question 18

If the interest rate is above the Fed's target, the Fed should

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 19

People choose to hold a larger quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall. 
A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.

Question 20

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and 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.

The interest-rate effect

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Shifts in aggregate demand affect the price level in

Which of the following is correct?

In the graph of the money market, the money supply curve is

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

According to liquidity preference theory, if the price level decreases, then

Fiscal policy affects the economy

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

An increase in the U.S. interest rate

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

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Keynes argued that

If the interest rate is above the Fed's target, the Fed should

People choose to hold a larger quantity of money if

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

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 interest-rate effect

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Shifts in aggregate demand affect the price level in

Which of the following is correct?

In the graph of the money market, the money supply curve is

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

According to liquidity preference theory, if the price level decreases, then

Fiscal policy affects the economy

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

An increase in the U.S. interest rate

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

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Keynes argued that

If the interest rate is above the Fed's target, the Fed should

People choose to hold a larger quantity of money if

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

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

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.