Question 1

According to classical macroeconomic theory,

Accepted Answer

A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C)  given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D)  All of the above are correct. 
A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C)  given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D)  All of the above are correct.

Question 2

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession. 
A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession.

Question 3

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A)  has no effect on aggregate demand. 
B)  has more of an effect on aggregate demand than if households view it as permanent. 
C)  has the same effect as when households view the cut as permanent. 
D)  has less of an effect on aggregate demand than if households view it as permanent. 
A)  has no effect on aggregate demand. 
B)  has more of an effect on aggregate demand than if households view it as permanent. 
C)  has the same effect as when households view the cut as permanent. 
D)  has less of an effect on aggregate demand than if households view it as permanent.

Question 4

If the inflation rate is zero, then

Accepted Answer

A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero. 
A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero.

Question 5

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money. 
A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money.

Question 6

If the MPC = 0.75, then the government purchases multiplier is about

Accepted Answer

A)  1.33. 
B)  7. 
C)  4. 
D)  3. 
A)  1.33. 
B)  7. 
C)  4. 
D)  3.

Question 7

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 8

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. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect. 
A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect.

Question 9

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. 
A)  When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.

Question 10

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock­market boom increases households' wealth by $500, and there is an operative crowding­out effect. 
B)  A stock­market boom increases households' wealth by $575, and there is an operative crowding­out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $600, and there is no crowding- out effect. 
D)  Aggregate demand could increase by $1,500 in response to any of these events. 
A)  A stock­market boom increases households' wealth by $500, and there is an operative crowding­out effect. 
B)  A stock­market boom increases households' wealth by $575, and there is an operative crowding­out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $600, and there is no crowding- out effect. 
D)  Aggregate demand could increase by $1,500 in response to any of these events.

Question 11

In the long run, fiscal policy primarily affects

Accepted Answer

A)  aggregate demand. In the short run, it affects primarily aggregate supply. 
B)  aggregate supply. In the short run, it affects primarily saving, investment, and growth. 
C)  saving, investment, and growth. In the short run, it affects primarily aggregate demand. 
D)  saving, investment, and growth. In the short run, it affects primarily aggregate supply. 
A)  aggregate demand. In the short run, it affects primarily aggregate supply. 
B)  aggregate supply. In the short run, it affects primarily saving, investment, and growth. 
C)  saving, investment, and growth. In the short run, it affects primarily aggregate demand. 
D)  saving, investment, and growth. In the short run, it affects primarily aggregate supply.

Question 12

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing 
A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing

Question 13

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 14

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Accepted Answer

A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls. 
A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls.

Question 15

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 16

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)  an "easy" monetary policy. 
B)  a "passive" monetary policy. 
C)  a "practical" monetary policy. 
D)  an "active" monetary policy. 
A)  an "easy" monetary policy. 
B)  a "passive" monetary policy. 
C)  a "practical" monetary policy. 
D)  an "active" monetary policy.

Question 17

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money 
A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money

Question 18

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

Question 19

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect. 
A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect.

Question 20

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

According to classical macroeconomic theory,

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

If households view a tax cut as temporary, then the tax cut

If the inflation rate is zero, then

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

If the MPC = 0.75, then the government purchases multiplier is about

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

In the long run, fiscal policy primarily affects

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

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

A policy that results in slow and steady growth of the money supply is an example of

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

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

According to classical macroeconomic theory,

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

If households view a tax cut as temporary, then the tax cut

If the inflation rate is zero, then

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

If the MPC = 0.75, then the government purchases multiplier is about

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

In the long run, fiscal policy primarily affects

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

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

A policy that results in slow and steady growth of the money supply is an example of

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

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 wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.