Question 1

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)  rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B)  rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C)  leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D)  leftward. In an attempt to stabilize the economy, the government could decrease expenditures. 
A)  rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B)  rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C)  leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D)  leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Question 3

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int

Question 4

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.

Question 5

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar. 
A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar.

Question 6

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds. 
A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds.

Question 7

Figure 34-10  
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

The answer of Figure 34-10  
-Refer to Figure 34-10....

Question 8

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0 
A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0

Question 9

Figure 34-2. 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 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A)  the real interest rate is lower at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is lower at r2 than it is at r1. 
D)  All of the above are correct. 
A)  the real interest rate is lower at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is lower at r2 than it is at r1. 
D)  All of the above are correct.

Question 10

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 11

Figure 34-3  
-Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Accepted Answer

A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4 
A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4

Question 12

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 13

If the MPC is 0, then the multiplier is

Accepted Answer

A)  0. 
B)  1. 
C)  infinite. 
D)  None of the above is correct. 
A)  0. 
B)  1. 
C)  infinite. 
D)  None of the above is correct.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 16

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand. 
A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand.

Question 17

Suppose there is an increase in government spending. To stabilize output, 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 18

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise. 
A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise.

Question 19

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)  increasing the money supply, which raises interest rates. 
B)  increasing the money supply, which lowers interest rates. 
C)  decreasing the money supply, which raises interest rates. 
D)  decreasing the money supply, which lowers interest rates. 
A)  increasing the money supply, which raises interest rates. 
B)  increasing the money supply, which lowers interest rates. 
C)  decreasing the money supply, which raises interest rates. 
D)  decreasing the money supply, which lowers interest rates.

Question 20

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 multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $75 billion. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion. 
A)  $75 billion. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion.

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

An increase in the money supply shifts the aggregate-supply curve to the right.

A reduction in U.S net exports would shift U.S. aggregate demand

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

The most important automatic stabilizer is

An increase in the U.S. interest rate

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

In which of the following cases would the quantity of money demanded be smallest?

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

If the MPC is 0, then the multiplier is

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

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

During periods of expansion, automatic stabilizers cause government expenditures

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

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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