Question 1

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 2

When the Fed lowers the growth rate of the money supply, it must take into account

Accepted Answer

A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production. 
A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production.

Question 3

Which of the following statements is correct for the long 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 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 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 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 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 4

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep 
A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep

Question 5

When households find themselves holding too much money, they respond by

Accepted Answer

A)  purchasing interest-earning financial assets and interest rates fall. 
B)  purchasing interest-earning financial assets and interest rates rise. 
C)  holding the extra money and interest rates rise. 
D)  selling interest-earning financial assets, which eliminates the excess supply of money. 
A)  purchasing interest-earning financial assets and interest rates fall. 
B)  purchasing interest-earning financial assets and interest rates rise. 
C)  holding the extra money and interest rates rise. 
D)  selling interest-earning financial assets, which eliminates the excess supply of money.

Question 6

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)  The price level rises, causing the interest rate to fall. 
B)  The price level falls, causing the interest rate to fall. 
C)  The money supply increases, causing the interest rate to fall. 
D)  The money supply decreases, causing the interest rate to fall. 
A)  The price level rises, causing the interest rate to fall. 
B)  The price level falls, causing the interest rate to fall. 
C)  The money supply increases, causing the interest rate to fall. 
D)  The money supply decreases, causing the interest rate to fall.

Question 7

Other things the same, as the price level rises,

Accepted Answer

A)  the interest rate rises causing aggregate demand to shift. 
B)  the interest rate rises causing a movement along a given aggregate-demand curve. 
C)  the interest rate falls causing aggregate demand to shift. 
D)  the interest rate falls causing a movement along a given aggregate-demand curve. 
A)  the interest rate rises causing aggregate demand to shift. 
B)  the interest rate rises causing a movement along a given aggregate-demand curve. 
C)  the interest rate falls causing aggregate demand to shift. 
D)  the interest rate falls causing a movement along a given aggregate-demand curve.

Question 8

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 9

In the short run,

Accepted Answer

A)  the price level alone adjusts to balance the supply and demand for money. 
B)  output responds to changes in the aggregate demand for goods and services. 
C)  changes in the money supply cause a proportional change in the price level. 
D)  increases in the money supply shift the aggregate supply curve causing output to rise. 
A)  the price level alone adjusts to balance the supply and demand for money. 
B)  output responds to changes in the aggregate demand for goods and services. 
C)  changes in the money supply cause a proportional change in the price level. 
D)  increases in the money supply shift the aggregate supply curve causing output to rise.

Question 10

During recessions, taxes tend to

Accepted Answer

A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand. 
A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand.

Question 11

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r

Question 12

To decrease the interest rate the Federal Reserve could

Accepted Answer

A)  buy bonds. The fall in the interest rate would increase investment spending. 
B)  buy bonds. The fall in the interest rate would decrease investment spending. 
C)  sell bonds. The fall in the interest rate would increase investment spending 
D)  sell bonds. The fall in the interest rate would decrease investment spending. 
A)  buy bonds. The fall in the interest rate would increase investment spending. 
B)  buy bonds. The fall in the interest rate would decrease investment spending. 
C)  sell bonds. The fall in the interest rate would increase investment spending 
D)  sell bonds. The fall in the interest rate would decrease investment spending.

Question 13

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion. 
A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion.

Question 14

According to classical macroeconomic theory,

Accepted Answer

A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. 
C)  output is determined by the supplies of capital and labor and the available production technology. 
D)  All of the above are correct. 
A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. 
C)  output is determined by the supplies of capital and labor and the available production technology. 
D)  All of the above are correct.

Question 15

If the interest rate is above 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 16

Suppose investment spending falls. To offset the 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 decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.

Question 17

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 18

An increase in government purchases is likely to

Accepted Answer

A)  decrease interest rates. 
B)  reduce money demand. 
C)  crowd out investment spending by business firms. 
D)  All of the above are correct. 
A)  decrease interest rates. 
B)  reduce money demand. 
C)  crowd out investment spending by business firms. 
D)  All of the above are correct.

Question 19

People will want to hold more money if the price level

Accepted Answer

A)  or if the interest rate increases. 
B)  or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  or if the interest rate increases. 
B)  or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 20

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will

Accepted Answer

A)  increase and the quantity of money demanded will decrease. 
B)  increase and the quantity of money demanded will increase. 
C)  decrease and the quantity of money demanded will decrease. 
D)  decrease and the quantity of money demanded will increase. 
A)  increase and the quantity of money demanded will decrease. 
B)  increase and the quantity of money demanded will increase. 
C)  decrease and the quantity of money demanded will decrease. 
D)  decrease and the quantity of money demanded will increase.

An increase in the money supply decreases the interest rate in the short run.

When the Fed lowers the growth rate of the money supply, it must take into account

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

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

When households find themselves holding too much money, they respond by

In which of the following cases does the aggregate-demand curve shift to the right?

Other things the same, as the price level rises,

If the MPC is 4/5, the multiplier is 5/4.

In the short run,

During recessions, taxes tend to

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

To decrease the interest rate the Federal Reserve could

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

According to classical macroeconomic theory,

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

Suppose investment spending falls. To offset the change in output the Federal Reserve could

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

An increase in government purchases is likely to

People will want to hold more money if the price level

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate 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

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Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the money supply decreases the interest rate in the short run.

When the Fed lowers the growth rate of the money supply, it must take into account

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

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

When households find themselves holding too much money, they respond by

In which of the following cases does the aggregate-demand curve shift to the right?

Other things the same, as the price level rises,

If the MPC is 4/5, the multiplier is 5/4.

In the short run,

During recessions, taxes tend to

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

To decrease the interest rate the Federal Reserve could

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

According to classical macroeconomic theory,

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

Suppose investment spending falls. To offset the change in output the Federal Reserve could

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

An increase in government purchases is likely to

People will want to hold more money if the price level

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate 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

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.