Question 1

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run. 
A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run.

Question 2

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 3

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 4

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money. 
A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money.

Question 5

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Accepted Answer

A)  Your aunt puts more money in her savings account. 
B)  Foreign citizens decide to buy fewer U.S. bonds. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  Your aunt puts more money in her savings account. 
B)  Foreign citizens decide to buy fewer U.S. bonds. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 6

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

Question 7

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

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 9

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)  interest rate 
B)  money supply 
C)  quantity of output 
D)  price level 
A)  interest rate 
B)  money supply 
C)  quantity of output 
D)  price level

Question 10

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

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 11

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)  Keynesian in nature, and that his view is more valid for the long run than for the short run. 
B)  classical in nature, and that his view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run. 
D)  classical in nature, and that his view is more valid for the short run than for the long run. 
A)  Keynesian in nature, and that his view is more valid for the long run than for the short run. 
B)  classical in nature, and that his view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run. 
D)  classical in nature, and that his view is more valid for the short run than for the long run.

Question 12

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect 
A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect

Question 13

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system

Question 14

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply 
A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply

Question 15

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 16

Figure 34-14  
-Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-14  
-Refer to Figure 34-14....

Question 17

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 18

The marginal propensity to consume MPC) is defined as the fraction of

Accepted Answer

A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves. 
A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves.

Question 19

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand. 
A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand.

Question 20

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

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

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

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Which of the following events would shift money demand to the right?

The multiplier for changes in government spending is calculated as

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

According to the liquidity preference theory, an increase in the overall price level of 10 percent

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

An increase in government purchases is likely to

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Which of the following is not an automatic stabilizer?

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Other things equal, the higher the price level, the higher is the real wealth of households.

The marginal propensity to consume MPC) is defined as the fraction of

Government purchases are said to have a

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

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

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.