Question 1

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 2

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Accepted Answer

A)  aggregate demand falls by 2 x $40 billion. 
B)  aggregate demand falls by 11/2 x $40 billion. 
C)  aggregate demand falls by 11/9 x $40 billion. 
D)  aggregate demand falls by 9/11 x $40 billion. 
A)  aggregate demand falls by 2 x $40 billion. 
B)  aggregate demand falls by 11/2 x $40 billion. 
C)  aggregate demand falls by 11/9 x $40 billion. 
D)  aggregate demand falls by 9/11 x $40 billion.

Question 3

To decrease the interest rate the Federal Reserve could

Accepted Answer

A)  buy bonds. The fall in the interest rate would increase investment spending. 
B)  buy bonds. The fall in the interest rate would decrease investment spending. 
C)  sell bonds. The fall in the interest rate would increase investment spending 
D)  sell bonds. The fall in the interest rate would decrease investment spending. 
A)  buy bonds. The fall in the interest rate would increase investment spending. 
B)  buy bonds. The fall in the interest rate would decrease investment spending. 
C)  sell bonds. The fall in the interest rate would increase investment spending 
D)  sell bonds. The fall in the interest rate would decrease investment spending.

Question 4

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants. 
A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question 5

Which of the following Fed actions would both decrease the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement 
A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement

Question 6

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 7

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 8

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory, but not classical theory. 
D)  classical theory, but not liquidity preference theory. 
A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory, but not classical theory. 
D)  classical theory, but not liquidity preference theory.

Question 9

When government expenditures 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 10

Other things the same, a decrease in the U.S. interest rate

Accepted Answer

A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars. 
A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars.

Question 11

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases. 
A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases.

Question 12

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Accepted Answer

increases,

Question 13

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 14

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 15

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 16

When the government reduces taxes, which of the following decreases?

Accepted Answer

A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct. 
A)  consumption 
B)  take-home pay 
C)  household saving 
D)  None of the above is correct.

Question 17

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 18

If the Fed conducts open-market sales, which of the following quantities increases)?

Accepted Answer

A)  interest rates, prices, and investment spending 
B)  interest rates and prices, but not investment spending 
C)  interest rates and investment, but not prices 
D)  interest rates, but not investment or prices 
A)  interest rates, prices, and investment spending 
B)  interest rates and prices, but not investment spending 
C)  interest rates and investment, but not prices 
D)  interest rates, but not investment or prices

Question 19

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending. 
A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending.

Question 20

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?

Accepted Answer

A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000. 
A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

To decrease the interest rate the Federal Reserve could

Which of the following illustrates how the investment accelerator works?

Which of the following Fed actions would both decrease the money supply?

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

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?

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

When government expenditures increase, the interest rate

Other things the same, a decrease in the U.S. interest rate

The multiplier effect is exemplified by the multiplied impact on

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

If the Federal Reserve decided to raise interest rates, it could

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

A tax increase has

When the government reduces taxes, which of the following decreases?

An increase in government spending initially and primarily shifts

If the Fed conducts open-market sales, which of the following quantities increases)?

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.