Question 1

Opponents of active stabilization policy

Accepted Answer

A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct. 
A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct.

Question 2

When the interest rate decreases, the opportunity cost of holding money

Accepted Answer

A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded increases. 
D)  decreases, so the quantity of money demanded decreases. 
A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded increases. 
D)  decreases, so the quantity of money demanded decreases.

Question 3

A tax cut shifts aggregate demand

Accepted Answer

A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct. 
A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct.

Question 4

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)  0.2 and the multiplier is 1.25. 
B)  0.8 and the multiplier is 5. 
C)  0.2 and the multiplier is 1.20. 
D)  0.8 and the multiplier is 8. 
A)  0.2 and the multiplier is 1.25. 
B)  0.8 and the multiplier is 5. 
C)  0.2 and the multiplier is 1.20. 
D)  0.8 and the multiplier is 8.

Question 5

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left. 
A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left.

Question 6

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. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650. 
B)  0.750. 
C)  0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D)  0.800. 
A)  0.650. 
B)  0.750. 
C)  0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D)  0.800.

Question 7

An increase in government spending shifts aggregate demand

Accepted Answer

A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts. 
A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts.

Question 8

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

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 9

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m

Question 10

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 11

A tax increase has

Accepted Answer

A)  a multiplier effect but not a crowding out effect 
B)  a crowding out effect but not a multiplier effect 
C)  both a crowding out and multiplier effect 
D)  neither a multiplier or crowding out effect 
A)  a multiplier effect but not a crowding out effect 
B)  a crowding out effect but not a multiplier effect 
C)  both a crowding out and multiplier effect 
D)  neither a multiplier or crowding out effect

Question 12

Monetary policy is determined by

Accepted Answer

A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply. 
A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply.

Question 13

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth. 
A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth.

Question 14

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Accepted Answer

A)  $381.67. 
B)  $378. 
C)  $383. 
D)  $383.33. 
A)  $381.67. 
B)  $378. 
C)  $383. 
D)  $383.33.

Question 15

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 16

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 graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct. 
A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct.

Question 17

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 18

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 19

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 20

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion. 
A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion.

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

Opponents of active stabilization policy

When the interest rate decreases, the opportunity cost of holding money

A tax cut shifts aggregate demand

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

According to liquidity preference theory, if the price level decreases, then

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. The marginal propensity to consume for this economy is

An increase in government spending shifts aggregate demand

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

What is the difference between monetary policy and fiscal policy?

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

A tax increase has

Monetary policy is determined by

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

The is the most important automatic stabilizer.

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

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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