Question 1

Supply-side economists focus more than other economists on

Accepted Answer

A)  how fiscal policy affects consumption. 
B)  the multiplier effect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply. 
A)  how fiscal policy affects consumption. 
B)  the multiplier effect of fiscal policy. 
C)  how fiscal policy affects aggregate supply. 
D)  the money supply.

Question 2

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. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2. 
A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. 
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.

Question 3

Fiscal 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 4

People might withdraw money from interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall, if there is a surplus in the money market. 
B)  making the interest rate rise, if there is a surplus in the money market. 
C)  making the interest rate fall, if there is a shortage in the money market. 
D)  making the interest rate rise, if there is a shortage in the money market. 
A)  making the interest rate fall, if there is a surplus in the money market. 
B)  making the interest rate rise, if there is a surplus in the money market. 
C)  making the interest rate fall, if there is a shortage in the money market. 
D)  making the interest rate rise, if there is a shortage in the money market.

Question 5

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 multiplier for this economy is

Accepted Answer

A)  2.85. 
B)  1.53. 
C)  4.00. 
D)  7.00. 
A)  2.85. 
B)  1.53. 
C)  4.00. 
D)  7.00.

Question 6

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply 
A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply

Question 7

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200. 
A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200.

Question 8

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply. 
A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.

Question 9

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct. 
A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct.

Question 10

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 11

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 12

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

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

Question 14

If there is excess money supply, people will

Accepted Answer

A)  deposit more into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more 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 into interest-bearing accounts, and the interest rate will fall. 
B)  deposit more 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 15

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession. 
A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession.

Question 16

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary,

Question 17

Figure 34-1  
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

Question 18

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep 
A)  the interest rate falls and aggregate supply is relatively flat 
B)  the interest rate falls and aggregate supply is relatively steep 
C)  the interest rate rises and aggregate supply is relatively flat 
D)  the interest rate rises and aggregate supply is relatively steep

Question 19

For the U.S. economy, money holdings are a

Accepted Answer

A)  large part of household wealth, and so the interest-rate effect is large. 
B)  large part of household wealth, and so the wealth effect is large. 
C)  small part of household wealth, and so the interest-rate effect is small. 
D)  small part of household wealth, and so the wealth effect is small. 
A)  large part of household wealth, and so the interest-rate effect is large. 
B)  large part of household wealth, and so the wealth effect is large. 
C)  small part of household wealth, and so the interest-rate effect is small. 
D)  small part of household wealth, and so the wealth effect is small.

Question 20

When Congress reduces spending in order to balance the government's budget, it needs to consider

Accepted Answer

A)  both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth. 
B)  only the short-run effects on aggregate demand and aggregate supply. 
C)  only the long-run effects on saving and growth. 
D)  only the long-run effects on aggregate demand and aggregate supply. 
A)  both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth. 
B)  only the short-run effects on aggregate demand and aggregate supply. 
C)  only the long-run effects on saving and growth. 
D)  only the long-run effects on aggregate demand and aggregate supply.

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

Supply-side economists focus more than other economists on

Fiscal policy is determined by

People might withdraw money from interest-bearing accounts,

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 multiplier for this economy is

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

If the MPC is 5/6 then the multiplier is

Monetary policy

Other things the same, which of the following happens if the price level rises?

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

If there is excess money supply, people will

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

For the U.S. economy, money holdings are a

When Congress reduces spending in order to balance the government's budget, it needs to consider

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

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.