Question 1

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 2

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect. 
A)  the multiplier effect. 
B)  the crowding-out effect. 
C)  the Fisher effect. 
D)  the wealth effect.

Question 3

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

A)  buy bonds to raise the interest rate. 
B)  buy bonds to lower the interest rate 
C)  sell bonds to raise the interest rate. 
D)  sell bonds to raise the interest rate 
A)  buy bonds to raise the interest rate. 
B)  buy bonds to lower the interest rate 
C)  sell bonds to raise the interest rate. 
D)  sell bonds to raise the interest rate

Question 4

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 5

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)  $60 billion, but the effect would be larger if there were an investment accelerator. 
B)  $60 billion, but the effect would be smaller if there were an investment accelerator. 
C)  $45 billion, but the effect would be larger if there were an investment accelerator. 
D)  $45 billion, but the effect would be smaller if there were an investment accelerator. 
A)  $60 billion, but the effect would be larger if there were an investment accelerator. 
B)  $60 billion, but the effect would be smaller if there were an investment accelerator. 
C)  $45 billion, but the effect would be larger if there were an investment accelerator. 
D)  $45 billion, but the effect would be smaller if there were an investment accelerator.

Question 6

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 7

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C)  $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D)  $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand. 
A)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C)  $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D)  $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.

Question 8

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates.

Question 9

Because the liquidity-preference framework focuses on the

Accepted Answer

A)  short run, it assumes the price level adjusts to bring the money market to equilibrium. 
B)  short run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
C)  long run, it assumes the price level adjusts to bring the money market to equilibrium. 
D)  long run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
A)  short run, it assumes the price level adjusts to bring the money market to equilibrium. 
B)  short run, it assumes the interest rate adjusts to bring the money market to equilibrium. 
C)  long run, it assumes the price level adjusts to bring the money market to equilibrium. 
D)  long run, it assumes the interest rate adjusts to bring the money market to equilibrium.

Question 10

Figure 34-11  
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Accepted Answer

government

Question 11

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall, so aggregate demand shifts right. 
B)  the interest rate to fall, so aggregate demand shifts left. 
C)  the interest rate to rise, so aggregate demand shifts right. 
D)  the interest rate to rise, so aggregate demand shifts left. 
A)  the interest rate to fall, so aggregate demand shifts right. 
B)  the interest rate to fall, so aggregate demand shifts left. 
C)  the interest rate to rise, so aggregate demand shifts right. 
D)  the interest rate to rise, so aggregate demand shifts left.

Question 12

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A)  MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B)  MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C)  MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D)  All of the above are correct. 
A)  MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures. 
B)  MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures 
C)  MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures 
D)  All of the above are correct.

Question 13

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  All of the above are correct. 
A)  the multiplier effect 
B)  the crowding-out effect 
C)  the accelerator effect 
D)  All of the above are correct.

Question 14

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion 
A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion

Question 15

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. Under the assumptions of the model,

Accepted Answer

A)  the real interest rate is lower at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is lower at r2 than it is at r1. 
D)  All of the above are correct. 
A)  the real interest rate is lower at Y2 than it is at Y1. 
B)  the quantity of money is the same at Y1 as it is at Y2. 
C)  the price level is lower at r2 than it is at r1. 
D)  All of the above are correct.

Question 16

When there is an increase in government expenditures, which of the following raises investment spending?

Accepted Answer

A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out 
A)  the investment accelerator and crowding out 
B)  the investment accelerator but not crowding out 
C)  crowding out but not the investment accelerator 
D)  neither the investment accelerator or crowding out

Question 17

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

output, pr

Question 18

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 19

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply 
A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply

Question 20

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 r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

If the interest rate is below the Fed's target, the Fed would

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

When taxes increase, the interest rate

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Because the liquidity-preference framework focuses on the

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

When there is an increase in government expenditures, which of the following raises investment spending?

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

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

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

If the interest rate is below the Fed's target, the Fed would

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

When taxes increase, the interest rate

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Because the liquidity-preference framework focuses on the

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

When there is an increase in government expenditures, which of the following raises investment spending?

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

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 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.