Question 1

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero. 
A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero.

Question 2

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand. 
A)  the smaller the MPC and the stronger the influence of income on money demand. 
B)  the smaller the MPC and the weaker the influence of income on money demand. 
C)  the larger the MPC and the stronger the influence of income on money demand. 
D)  the larger the MPC and the weaker the influence of income on money demand.

Question 5

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion. 
A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion.

Question 6

If the stock market booms, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply. 
A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply.

Question 7

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause an) in interest rates...

Question 8

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 9

Which of the following reduces the interest rate?

Accepted Answer

A)  an increase in government expenditures and an increase in the money supply 
B)  an increase in government expenditures and a decrease in the money supply 
C)  a decrease in government expenditures and an increase in the money supply 
D)  a decrease in government expenditures and a decrease in the money supply 
A)  an increase in government expenditures and an increase in the money supply 
B)  an increase in government expenditures and a decrease in the money supply 
C)  a decrease in government expenditures and an increase in the money supply 
D)  a decrease in government expenditures and a decrease in the money supply

Question 10

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds. 
A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds.

Question 11

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise. 
A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise.

Question 12

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 13

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

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 14

Critics of stabilization policy argue that

Accepted Answer

A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth. 
A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth.

Question 15

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 16

Figure 34-14  
-Refer to Figure 34-14. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Accepted Answer

Question 17

Assume the MPC is 0.72. The multiplier is

Accepted Answer

A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57. 
A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57.

Question 18

If the stock market booms, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by increasing the money supply. 
B)  aggregate supply increases, which the Fed could offset by increasing the money supply. 
C)  aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D)  aggregate supply increases, which the Fed could offset by decreasing the money supply. 
A)  aggregate demand increases, which the Fed could offset by increasing the money supply. 
B)  aggregate supply increases, which the Fed could offset by increasing the money supply. 
C)  aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D)  aggregate supply increases, which the Fed could offset by decreasing the money supply.

Question 19

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct.

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

During the economic downturn of 2008-2009, the Federal Reserve

During recessions, the government tends to run a budget deficit.

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

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

If the stock market booms, then

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Which of the following reduces the interest rate?

According to liquidity preference theory, the opportunity cost of holding money is

During periods of expansion, automatic stabilizers cause government expenditures

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

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Critics of stabilization policy argue that

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

Figure 34-14 -Refer to Figure 34-14. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Assume the MPC is 0.72. The multiplier is

If the stock market booms, then

During recessions, unemployment insurance payments tend to rise.

Which of the following shifts aggregate demand to the right?

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

Figure 34-14 -Refer to Figure 34-14. Households' desired money holdings are given by MD₁. If the current rate of interest is r₃, then there is excess ___. Households will _ interest-earning assets, which causes the interest rate to ___.