Question 1

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/1

Question 3

When the Fed buys 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 4

Automatic stabilizers

Accepted Answer

A)  increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B)  are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C)  are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D)  All of the above are correct. 
A)  increase the problems that lags cause in using fiscal policy as a stabilization tool. 
B)  are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. 
C)  are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. 
D)  All of the above are correct.

Question 5

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase,

Question 6

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 7

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 8

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 9

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 10

Other things equal, in the short run a lower price level leads households to

Accepted Answer

A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods. 
A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods.

Question 11

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate

Question 12

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 13

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply 
A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply

Question 15

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 16

According to liquidity preference theory, an increase in the price level shifts the

Accepted Answer

A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases. 
A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases.

Question 17

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills. 
A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills.

Question 18

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

Question 19

Keynes argued that

Accepted Answer

A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct. 
A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct.

Question 20

People choose to hold a larger quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall. 
A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

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

Automatic stabilizers

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

An increase in the money supply will

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

To decrease the interest rate the Federal Reserve could

Stock prices often rise when the Fed raises interest rates.

Other things equal, in the short run a lower price level leads households to

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

An increase in the interest rate could have been caused by

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Shifts in aggregate demand affect the price level in

According to liquidity preference theory, an increase in the price level shifts the

The Federal Funds rate is the interest rate

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Keynes argued that

People choose to hold a larger quantity of money if

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

Filters

To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.