Question 1

Figure 34-1  
-Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Accepted Answer

A)  demand for money equal to the distance between points a and b. 
B)  demand for money equal to the distance between points b and c. 
C)  supply of money equal to the distance between points a and b. 
D)  supply of money equal to the distance between points b and c. 
A)  demand for money equal to the distance between points a and b. 
B)  demand for money equal to the distance between points b and c. 
C)  supply of money equal to the distance between points a and b. 
D)  supply of money equal to the distance between points b and c.

Question 2

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

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

Question 3

According to liquidity preference theory, a decrease in the price level causes the interest rate to

Accepted Answer

A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded. 
A)  increase, which increases the quantity of goods and services demanded. 
B)  increase, which decreases the quantity of goods and services demanded. 
C)  decrease, which increases the quantity of goods and services demanded. 
D)  decrease, which decreases the quantity of goods and services demanded.

Question 4

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts. 
A)  3.2 for government purchases and 2.0 for tax cuts. 
B)  2.4 for government purchases and 1.4 for tax cuts. 
C)  1.6 for government purchases and 1.0 for tax cuts. 
D)  1.6 for government purchases and 0.4 for tax cuts.

Question 5

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

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

Question 6

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. What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output 
A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output

Question 7

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a effect on...

Question 8

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect. 
A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.

Question 9

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds. 
A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds.

Question 10

If the stock market crashes, then

Accepted Answer

A)  aggregate demand decreases, which the Fed could offset by purchasing bonds. 
B)  aggregate demand decreases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate demand increases, which the Fed could offset by purchasing the money supply. 
A)  aggregate demand decreases, which the Fed could offset by purchasing bonds. 
B)  aggregate demand decreases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate demand increases, which the Fed could offset by purchasing the money supply.

Question 11

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Accepted Answer

supply, pu

Question 12

In the long run, the level of output

Accepted Answer

A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct. 
A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct.

Question 13

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 14

As real GDP falls,

Accepted Answer

A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls. 
A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls.

Question 15

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect, exchange-rate effect, interest-rate effect 
B)  exchange-rate effect, interest-rate effect, wealth effect 
C)  interest-rate effect, wealth effect, exchange-rate effect 
D)  interest-rate effect, exchange-rate effect, wealth effect 
A)  wealth effect, exchange-rate effect, interest-rate effect 
B)  exchange-rate effect, interest-rate effect, wealth effect 
C)  interest-rate effect, wealth effect, exchange-rate effect 
D)  interest-rate effect, exchange-rate effect, wealth effect

Question 16

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 17

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5. 
A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.

Question 18

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 19

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 20

In the short run, an increase in the money supply causes interest rates to

Accepted Answer

A)  increase, and aggregate demand to shift right. 
B)  increase, and aggregate demand to shift left. 
C)  decrease, and aggregate demand to shift right. 
D)  decrease, and aggregate demand to shift left. 
A)  increase, and aggregate demand to shift right. 
B)  increase, and aggregate demand to shift left. 
C)  decrease, and aggregate demand to shift right. 
D)  decrease, and aggregate demand to shift left.

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

Figure 34-1 -Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

According to liquidity preference theory, a decrease in the price level causes the interest rate to

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

According to liquidity preference theory, the opportunity cost of holding money is

If the stock market crashes, then

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

In the long run, the level of output

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

As real GDP falls,

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

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

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

In the short run, an increase in the money supply causes interest rates to

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

When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.