Question 1

Keynes argued that aggregate demand is

Accepted Answer

A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations. 
A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations.

Question 2

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa

Question 3

An increase in the money supply will

Accepted Answer

A)  increase interest rates, decreasing investment and aggregate demand. 
B)  reduce interest rates, increasing investment and aggregate demand. 
C)  reduce interest rates, decreasing investment and increasing aggregate demand. 
D)  increase interest rates, increasing investment and aggregate demand. 
A)  increase interest rates, decreasing investment and aggregate demand. 
B)  reduce interest rates, increasing investment and aggregate demand. 
C)  reduce interest rates, decreasing investment and increasing aggregate demand. 
D)  increase interest rates, increasing investment and aggregate demand.

Question 4

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth. 
A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth.

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 MD1. If the current interest rate is r2, then

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 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)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
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 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)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.

Question 6

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu

Question 7

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

Accepted Answer

A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise. 
A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise.

Question 8

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants. 
A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question 9

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Accepted Answer

increases,

Question 10

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

Accepted Answer

A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves. 
A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves.

Question 11

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply. 
A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.

Question 12

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The multiplier for this economy is

Accepted Answer

A)  2.85. 
B)  1.53. 
C)  4.00. 
D)  7.00. 
A)  2.85. 
B)  1.53. 
C)  4.00. 
D)  7.00.

Question 13

An increase in the MPC

Accepted Answer

A)  increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
A)  increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

Question 14

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Accepted Answer

The answer of To stabilize output, the Federal Reserve will...

Question 15

Macroeconomic forecasts are

Accepted Answer

A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant. 
A)  precise; this makes policy lags less relevant. 
B)  precise; this makes policy lags more relevant. 
C)  imprecise; this makes policy lags less relevant. 
D)  imprecise; this makes policy lags more relevant.

Question 16

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. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2. 
A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.

Question 17

Figure 34-11  
Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Accepted Answer

government

Question 18

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Accepted Answer

A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect. 
A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect.

Question 19

Most recessions and depressions

Accepted Answer

A)  are accurately forecasted. 
B)  usually occur with ample advance warning. 
C)  cause falling unemployment. 
D)  occur with little advance warning. 
A)  are accurately forecasted. 
B)  usually occur with ample advance warning. 
C)  cause falling unemployment. 
D)  occur with little advance warning.

Question 20

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits. 
A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits.

Keynes argued that aggregate demand is

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

An increase in the money supply will

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

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 MD1. If the current interest rate is r2, then

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

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

Which of the following illustrates how the investment accelerator works?

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

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

Monetary policy

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The multiplier for this economy is

An increase in the MPC

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Macroeconomic forecasts are

Figure 34-11 Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Most recessions and depressions

Keynes used the term "animal spirits" to refer to

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

Keynes argued that aggregate demand is

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

An increase in the money supply will

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

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 MD1. If the current interest rate is r2, then

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

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

Which of the following illustrates how the investment accelerator works?

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

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

Monetary policy

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The multiplier for this economy is

An increase in the MPC

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Macroeconomic forecasts are

Figure 34-11 Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Most recessions and depressions

Keynes used the term "animal spirits" to refer to

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

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Figure 34-11 Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.