Question 1

An increase in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply in either direction. 
A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply in either direction.

Question 2

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 3

If there is excess demand for money, then people will

Accepted Answer

A)  deposit more money into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts, and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts, and the interest rate will rise. 
A)  deposit more money into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more money into interest-bearing accounts, and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 4

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

output, pr

Question 5

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Accepted Answer

A)  the equilibrium interest rate increases. 
B)  the aggregate-demand curve shifts to the right. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the short-run aggregate-supply curve shifts to the left. 
A)  the equilibrium interest rate increases. 
B)  the aggregate-demand curve shifts to the right. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the short-run aggregate-supply curve shifts to the left.

Question 6

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase both consumption and investment spending. 
D)  None of the above is correct. 
A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase both consumption and investment spending. 
D)  None of the above is correct.

Question 7

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)  increase taxes 
B)  increase government expenditures 
C)  increase the money supply 
D)  All of the above are correct. 
A)  increase taxes 
B)  increase government expenditures 
C)  increase the money supply 
D)  All of the above are correct.

Question 8

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible. 
A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible.

Question 9

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r

Question 10

Figure 34-10  
-Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Accepted Answer

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

Question 11

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase. 
A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase.

Question 12

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into an)

Accepted Answer

A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect. 
A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect.

Question 13

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)  the Federal Reserve would have less reason than it has now to monitor stock prices. 
B)  it would be more desirable than it is now for the Federal Reserve to target an interest rate. 
C)  a strict balanced-budget rule would be more desirable than it is now. 
D)  output and employment would probably be more volatile than they are now. 
A)  the Federal Reserve would have less reason than it has now to monitor stock prices. 
B)  it would be more desirable than it is now for the Federal Reserve to target an interest rate. 
C)  a strict balanced-budget rule would be more desirable than it is now. 
D)  output and employment would probably be more volatile than they are now.

Question 14

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither crowding out nor the investment accelerator

Question 15

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 16

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu

Question 17

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 18

According to the theory of liquidity preference,

Accepted Answer

A)  if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B)  if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C)  the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D)  All of the above are correct. 
A)  if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created. 
B)  if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created. 
C)  the demand for money is represented by a downward-sloping line on a supply-and-demand graph. 
D)  All of the above are correct.

Question 19

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 20

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income. 
A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income.

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

An increase in government spending initially and primarily shifts

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

If there is excess demand for money, then people will

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

The Fed is concerned about stock market booms because the booms

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

If it were not for the automatic stabilizers in the U.S. economy,

Which of the following effects results from the change in the interest rate created by an increase in government spending?

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

The interest rate falls if

According to the theory of liquidity preference,

The Fed can influence the money supply by

Liquidity preference refers directly to Keynes' theory concerning

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

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.