Question 1

In recent years, the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate. 
A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate.

Question 2

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

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

Question 3

If the MPC is 3/5 then the multiplier is

Accepted Answer

A)  4, so a $100 increase in government spending increases aggregate demand by $400. 
B)  1.5, so a $100 increase in government spending increases output by $150. 
C)  2.5, so a $100 increase in government spending increases aggregate demand by $250. 
D)  1.67, so a $100 increase in government spending increases output by $166.67. 
A)  4, so a $100 increase in government spending increases aggregate demand by $400. 
B)  1.5, so a $100 increase in government spending increases output by $150. 
C)  2.5, so a $100 increase in government spending increases aggregate demand by $250. 
D)  1.67, so a $100 increase in government spending increases output by $166.67.

Question 4

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)  the MPC is large and if the tax cut is permanent. 
B)  the MPC is large and if the tax cut is temporary. 
C)  the MPC is small and if the tax cut is permanent. 
D)  the MPC is small and if the tax cut is temporary. 
A)  the MPC is large and if the tax cut is permanent. 
B)  the MPC is large and if the tax cut is temporary. 
C)  the MPC is small and if the tax cut is permanent. 
D)  the MPC is small and if the tax cut is temporary.

Question 5

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, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P = P2,

Accepted Answer

A)  investment is lower than it is when P = P1. 
B)  nominal output is higher than it is when P = P1. 
C)  the expected rate of inflation is higher than it is when P = P1. 
D)  the velocity of money is higher than it is when P = P1. 
A)  investment is lower than it is when P = P1. 
B)  nominal output is higher than it is when P = P1. 
C)  the expected rate of inflation is higher than it is when P = P1. 
D)  the velocity of money is higher than it is when P = P1.

Question 6

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, 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 7

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Accepted Answer

Automatic

Question 8

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)  the money supply. 
B)  government spending and taxes. 
C)  trade policy. 
D)  All of the above are correct. 
A)  the money supply. 
B)  government spending and taxes. 
C)  trade policy. 
D)  All of the above are correct.

Question 9

People are likely to want to hold more money if the interest rate

Accepted Answer

A)  increases, making the opportunity cost of holding money rise. 
B)  increases, making the opportunity cost of holding money fall. 
C)  decreases, making the opportunity cost of holding money rise. 
D)  decreases, making the opportunity cost of holding money fall. 
A)  increases, making the opportunity cost of holding money rise. 
B)  increases, making the opportunity cost of holding money fall. 
C)  decreases, making the opportunity cost of holding money rise. 
D)  decreases, making the opportunity cost of holding money fall.

Question 10

The Employment Act of 1946

Accepted Answer

A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct 
A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct

Question 11

In the short run, open-market purchases

Accepted Answer

A)  increase investment and real GDP, and decrease nominal interest rates. 
B)  increase real GDP and nominal interest rates, and decrease investment. 
C)  increase investment and nominal interest rates, and decrease real GDP. 
D)  decrease investment, nominal interest rates, and real GDP. 
A)  increase investment and real GDP, and decrease nominal interest rates. 
B)  increase real GDP and nominal interest rates, and decrease investment. 
C)  increase investment and nominal interest rates, and decrease real GDP. 
D)  decrease investment, nominal interest rates, and real GDP.

Question 12

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. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment. 
A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 13

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

Accepted Answer

A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves. 
A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves.

Question 14

In the short run, open-market sales

Accepted Answer

A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP. 
A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP.

Question 15

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D)  All of the above are correct. 
A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D)  All of the above are correct.

Question 16

The multiplier is computed as MPC / 1 - MPC).

Accepted Answer

A) True 
 B)False

Question 17

When taxes increase, the interest rate

Accepted Answer

A)  increases, making the change in aggregate demand larger. 
B)  increases, making the change in aggregate demand smaller 
C)  decreases, making the change in aggregate demand larger. 
D)  decreases, making the change in aggregate demand smaller. 
A)  increases, making the change in aggregate demand larger. 
B)  increases, making the change in aggregate demand smaller 
C)  decreases, making the change in aggregate demand larger. 
D)  decreases, making the change in aggregate demand smaller.

Question 18

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate. 
A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate.

Question 19

An example of an automatic stabilizer is

Accepted Answer

A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession. 
A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession.

Question 20

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C)  price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓ 
A)  price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C)  price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓

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

In recent years, the Federal Reserve has conducted policy by setting a target for

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

If the MPC is 3/5 then the multiplier is

A tax cut shifts the aggregate demand curve the farthest if

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Fiscal policy refers to the idea that aggregate demand is affected by changes in

People are likely to want to hold more money if the interest rate

The Employment Act of 1946

In the short run, open-market purchases

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

In the short run, open-market sales

An increase in government spending on goods to build or repair infrastructure

The multiplier is computed as MPC / 1 - MPC).

When taxes increase, the interest rate

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

An example of an automatic stabilizer is

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

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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