Question 1

If the Federal Reserve decreases the money supply, then initially there is a

Accepted Answer

A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds. 
A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds.

Question 2

Other things the same, a decrease in the U.S. interest rate

Accepted Answer

A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars. 
A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars.

Question 3

Figure 34-3  
-Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Accepted Answer

A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4 
A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4

Question 4

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/1-MPC) = 1/1-.8) = 1

Question 5

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 decrease in the equilibrium interest rate from r1 to r3?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment 
A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment

Question 6

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

Accepted Answer

A)  buying government bonds, which decreases the supply of money. 
B)  selling government bonds, which increases the supply of money. 
C)  buying government bonds, which increases the supply of money. 
D)  selling government bonds, which decreases the supply of money. 
A)  buying government bonds, which decreases the supply of money. 
B)  selling government bonds, which increases the supply of money. 
C)  buying government bonds, which increases the supply of money. 
D)  selling government bonds, which decreases the supply of money.

Question 7

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 8

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 9

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 10

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending. 
A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending.

Question 11

Figure 34-12  
Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-12  
Refer to Figure 34-12....

Question 12

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5. 
A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.

Question 13

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

A)  Keynesian in nature, and that her view is more valid for the long run than for the short run. 
B)  classical in nature, and that her view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that her view is more valid for the short run than for the long run. 
D)  classical in nature, and that her view is more valid for the short run than for the long run. 
A)  Keynesian in nature, and that her view is more valid for the long run than for the short run. 
B)  classical in nature, and that her view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that her view is more valid for the short run than for the long run. 
D)  classical in nature, and that her view is more valid for the short run than for the long run.

Question 14

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income. 
A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.

Question 15

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct. 
A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct.

Question 16

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money. 
A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money.

Question 17

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending. 
A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending.

Question 18

If the interest rate decreases

Accepted Answer

A)  or if the price level increases, then people will want to hold more money. 
B)  or if the price level increases, then people will want to hold less money. 
C)  or if the price level decreases, then people will want to hold more money. 
D)  or if the price level decreases, then people will want to hold less money. 
A)  or if the price level increases, then people will want to hold more money. 
B)  or if the price level increases, then people will want to hold less money. 
C)  or if the price level decreases, then people will want to hold more money. 
D)  or if the price level decreases, then people will want to hold less money.

Question 19

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect. 
A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect.

Question 20

Which of the following sequences best represents the crowding-out effect?

Accepted Answer

A)  government purchases ↑ ⇒ GDP ↑ ⇒ supply of money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  government purchases ↓ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C)  government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  taxes ↑ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
A)  government purchases ↑ ⇒ GDP ↑ ⇒ supply of money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  government purchases ↓ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C)  government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  taxes ↑ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓

If the Federal Reserve decreases the money supply, then initially there is a

Other things the same, a decrease in the U.S. interest rate

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

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 decrease in the equilibrium interest rate from r1 to r3?

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

An increase in the money supply shifts the aggregate-supply curve to the right.

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

The interest rate falls if

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Figure 34-12 Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

The primary argument against active monetary and fiscal policy is that

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Which of the following correctly explains the crowding-out effect?

If the interest rate decreases

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Which of the following sequences best represents the crowding-out effect?

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 Federal Reserve decreases the money supply, then initially there is a

Other things the same, a decrease in the U.S. interest rate

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

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 decrease in the equilibrium interest rate from r1 to r3?

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

An increase in the money supply shifts the aggregate-supply curve to the right.

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

The interest rate falls if

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Figure 34-12 Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

The primary argument against active monetary and fiscal policy is that

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Which of the following correctly explains the crowding-out effect?

If the interest rate decreases

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Which of the following sequences best represents the crowding-out effect?

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

Figure 34-12 Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.