Question 1

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises. 
A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises.

Question 2

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)  increase money demand and interest rates. Investment declines. 
B)  increase money demand and interest rates. Investment increases. 
C)  increase money demand, reduce interest rates, and investment increases. 
D)  decrease money demand and interest rates. Investment declines. 
A)  increase money demand and interest rates. Investment declines. 
B)  increase money demand and interest rates. Investment increases. 
C)  increase money demand, reduce interest rates, and investment increases. 
D)  decrease money demand and interest rates. Investment declines.

Question 3

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts. 
A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts.

Question 4

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy. 
A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy.

Question 5

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 6

If taxes

Accepted Answer

A)  increase, then consumption increases, and aggregate demand shifts leftward. 
B)  increase, then consumption decreases, and aggregate demand shifts rightward. 
C)  decrease, then consumption increases, and aggregate demand shifts rightward. 
D)  decrease, then consumption decreases, and aggregate demand shifts leftward. 
A)  increase, then consumption increases, and aggregate demand shifts leftward. 
B)  increase, then consumption decreases, and aggregate demand shifts rightward. 
C)  decrease, then consumption increases, and aggregate demand shifts rightward. 
D)  decrease, then consumption decreases, and aggregate demand shifts leftward.

Question 7

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward, the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 8

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 9

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct. 
A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct.

Question 10

Paul Samuelson, a famous economist, said that

Accepted Answer

A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions." 
A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions."

Question 11

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory. 
A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory.

Question 12

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct. 
A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct.

Question 13

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 14

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)  an increase in the money supply and an increase in government purchases. 
B)  an increase in the money supply and a decrease in government purchases. 
C)  a decrease in the money supply and an increase in government purchases. 
D)  a decrease in the money supply and a decrease in government purchases. 
A)  an increase in the money supply and an increase in government purchases. 
B)  an increase in the money supply and a decrease in government purchases. 
C)  a decrease in the money supply and an increase in government purchases. 
D)  a decrease in the money supply and a decrease in government purchases.

Question 15

An increase in taxes shifts the aggregate curve to the .

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 16

In the long run, fiscal policy influences

Accepted Answer

A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function. 
A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.

Question 17

If the MPC = 0.75, then the government purchases multiplier is about

Accepted Answer

A)  1.33. 
B)  7. 
C)  4. 
D)  3. 
A)  1.33. 
B)  7. 
C)  4. 
D)  3.

Question 18

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 19

Figure 34-8  
-Refer to Figure 34-8. An increase in taxes will

Accepted Answer

A)  shift aggregate demand from AD1 to AD2. 
B)  shift aggregate demand from AD1 to AD3. 
C)  cause movement from point A to point B along AD1. 
D)  have no effect on aggregate demand. 
A)  shift aggregate demand from AD1 to AD2. 
B)  shift aggregate demand from AD1 to AD3. 
C)  cause movement from point A to point B along AD1. 
D)  have no effect on aggregate demand.

Question 20

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

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

The interest rate falls if

According to the interest-rate effect, an increase in the price level will

Permanent tax cuts shift the AD curve

Which of the following statements generates the greatest amount of disagreement among economists?

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

If taxes

Which of the following is correct?

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Paul Samuelson, a famous economist, said that

The theory of liquidity preference is most helpful in understanding

The lag problem associated with fiscal policy is due mostly to

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

An increase in taxes shifts the aggregate curve to the .

In the long run, fiscal policy influences

If the MPC = 0.75, then the government purchases multiplier is about

If people decide to hold less money, then

Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

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

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