Question 1

When the interest rate is above the equilibrium level,

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct. 
A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct.

Question 2

Which of the following is an example of an increase in government purchases?

Accepted Answer

A)  The government builds new roads. 
B)  The Federal Reserve purchases government bonds. 
C)  The government decreases personal income taxes. 
D)  The government increases unemployment insurance benefit payments. 
A)  The government builds new roads. 
B)  The Federal Reserve purchases government bonds. 
C)  The government decreases personal income taxes. 
D)  The government increases unemployment insurance benefit payments.

Question 3

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 4

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

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Monetary policy and fiscal policy influence

Accepted Answer

A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only. 
A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only.

Question 7

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Question 8

If the Fed conducts open-market sales, 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 9

The multiplier for changes in government spending is calculated as

Accepted Answer

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

Question 10

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

Accepted Answer

A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate. 
A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate.

Question 11

The multiplier effect

Accepted Answer

A)  and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B)  and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C)  diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D)  amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects. 
A)  and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B)  and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C)  diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D)  amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.

Question 12

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)  increase if there were a surplus in the money market. 
B)  increase if there were a shortage in the money market. 
C)  decrease if there were a surplus in the money market. 
D)  decrease if there were a shortage in the money market. 
A)  increase if there were a surplus in the money market. 
B)  increase if there were a shortage in the money market. 
C)  decrease if there were a surplus in the money market. 
D)  decrease if there were a shortage in the money market.

Question 13

People hold money primarily because it

Accepted Answer

A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account. 
A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account.

Question 14

If the stock market booms, then

Accepted Answer

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

Question 15

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 16

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct.

Question 17

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion 
A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion

Question 18

Figure 34-3  
-Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  Aggregate Demand. 
A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  Aggregate Demand.

Question 19

The Employment Act of 1946 states that

Accepted Answer

A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct. 
A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct.

Question 20

Figure 34-9  
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Accepted Answer

A)  requires the central bank to purchase government bonds, which will increase the money supply. 
B)  is a reduction in government purchases. 
C)  is a reduction in taxes. 
D)  requires the central bank to sell government bonds, which will reduce the money supply. 
A)  requires the central bank to purchase government bonds, which will increase the money supply. 
B)  is a reduction in government purchases. 
C)  is a reduction in taxes. 
D)  requires the central bank to sell government bonds, which will reduce the money supply.

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

When the interest rate is above the equilibrium level,

Which of the following is an example of an increase in government purchases?

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

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

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

Monetary policy and fiscal policy influence

Fiscal policy affects the economy

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

The multiplier for changes in government spending is calculated as

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

The multiplier effect

The interest rate would fall and the quantity of money demanded would

People hold money primarily because it

If the stock market booms, then

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Which of the following shifts aggregate demand to the right?

Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

The Employment Act of 1946 states that

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

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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