Question 1

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 2

If the stock market crashes, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by increasing the money supply. 
B)  aggregate demand increases, which the Fed could offset by decreasing the money supply. 
C)  aggregate demand decreases, which the Fed could offset by increasing the money supply. 
D)  aggregate demand decreases, which the Fed could offset by decreasing the money supply. 
A)  aggregate demand increases, which the Fed could offset by increasing the money supply. 
B)  aggregate demand increases, which the Fed could offset by decreasing the money supply. 
C)  aggregate demand decreases, which the Fed could offset by increasing the money supply. 
D)  aggregate demand decreases, which the Fed could offset by decreasing the money supply.

Question 3

If people decide to hold less money, then

Accepted Answer

A)  money demand decreases, there is an excess supply of money, and interest rates rise. 
B)  money demand decreases, there is an excess supply of money, and interest rates fall. 
C)  money demand increases, there is an excess demand for money, and interest rates fall. 
D)  money demand increases, there is an excess demand for money, and interest rates rise. 
A)  money demand decreases, there is an excess supply of money, and interest rates rise. 
B)  money demand decreases, there is an excess supply of money, and interest rates fall. 
C)  money demand increases, there is an excess demand for money, and interest rates fall. 
D)  money demand increases, there is an excess demand for money, and interest rates rise.

Question 4

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/MPC. 
B)  1/1 - MP
C) . 
C)  MPC/1 - MP
C) . 
D)  1 - MP
C) /MPC. 
A)  1/MPC. 
B)  1/1 - MP
C) . 
C)  MPC/1 - MP
C) . 
D)  1 - MP
C) /MPC.

Question 5

An example of an automatic stabilizer is

Accepted Answer

A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession. 
A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession.

Question 6

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct. 
A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct.

Question 7

Unemployment insurance benefits are an example of .

Accepted Answer

automatic

Question 8

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Accepted Answer

A)  increases by 2 percentage points. 
B)  increases, but by less than 2 percentage points. 
C)  decreases, but by less than 2 percentage points. 
D)  decreases by 2 percentage points. 
A)  increases by 2 percentage points. 
B)  increases, but by less than 2 percentage points. 
C)  decreases, but by less than 2 percentage points. 
D)  decreases by 2 percentage points.

Question 9

When there is an increase in government expenditures, which of the following raises investment spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out

Question 10

According to the theory of liquidity preference, if output decreases

Accepted Answer

A)  people want to hold more money. This response is shown as a movement along the money demand curve. 
B)  people want to hold more money. This response is shown as a shift of the money demand curve. 
C)  people want to hold less money. This response is shown as a movement along the money demand curve. 
D)  people want to hold less money. This response is shown as a shift of the money demand curve. 
A)  people want to hold more money. This response is shown as a movement along the money demand curve. 
B)  people want to hold more money. This response is shown as a shift of the money demand curve. 
C)  people want to hold less money. This response is shown as a movement along the money demand curve. 
D)  people want to hold less money. This response is shown as a shift of the money demand curve.

Question 11

Figure 34-6. 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 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct. 
A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct.

Question 12

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Accepted Answer

A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase. 
A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase.

Question 13

An increase in the interest rate could have been caused by

Accepted Answer

A)  a fall in the price level causing the money-demand curve to shift leftward. 
B)  a fall in the price level causing the money-demand curve to shift rightward. 
C)  a rise in the price level causing the money-demand curve to shift leftward. 
D)  a rise in the price level causing the money-demand curve to shift rightward. 
A)  a fall in the price level causing the money-demand curve to shift leftward. 
B)  a fall in the price level causing the money-demand curve to shift rightward. 
C)  a rise in the price level causing the money-demand curve to shift leftward. 
D)  a rise in the price level causing the money-demand curve to shift rightward.

Question 14

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 15

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 16

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 17

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases. 
A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases.

Question 18

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 19

If the Fed conducts open-market purchases, the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 20

The most important automatic stabilizer is

Accepted Answer

A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits. 
A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits.

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

If the stock market crashes, then

If people decide to hold less money, then

The multiplier for changes in government spending is calculated as

An example of an automatic stabilizer is

Some economists argue that

Unemployment insurance benefits are an example of .

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

When there is an increase in government expenditures, which of the following raises investment spending?

According to the theory of liquidity preference, if output decreases

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

An increase in the interest rate could have been caused by

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

If the Federal Reserve decided to raise interest rates, it could

During recessions, unemployment insurance payments tend to rise.

When the Fed sells government bonds, the reserves of the banking system

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

If the Fed conducts open-market purchases, the money supply

The most important automatic stabilizer is

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

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

If the stock market crashes, then

If people decide to hold less money, then

The multiplier for changes in government spending is calculated as

An example of an automatic stabilizer is

Some economists argue that

Unemployment insurance benefits are an example of .

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

When there is an increase in government expenditures, which of the following raises investment spending?

According to the theory of liquidity preference, if output decreases

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

An increase in the interest rate could have been caused by

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

If the Federal Reserve decided to raise interest rates, it could

During recessions, unemployment insurance payments tend to rise.

When the Fed sells government bonds, the reserves of the banking system

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

If the Fed conducts open-market purchases, the money supply

The most important automatic stabilizer is

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