Question 1

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Accepted Answer

A)  the multiplier is probably zero. 
B)  the multiplier is probably equal to one. 
C)  the multiplier is probably greater than one. 
D)  the multiplier is probably less than one. 
A)  the multiplier is probably zero. 
B)  the multiplier is probably equal to one. 
C)  the multiplier is probably greater than one. 
D)  the multiplier is probably less than one.

Question 2

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase,

Question 3

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 4

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5. 
A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.

Question 5

Critics of stabilization policy argue that

Accepted Answer

A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of, instead of a cure for, economic fluctuations. 
D)  All of the above are correct. 
A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of, instead of a cure for, economic fluctuations. 
D)  All of the above are correct.

Question 6

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 7

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. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

Accepted Answer

A)  represent an action taken by the Federal Reserve. 
B)  shift the AD curve to the left. 
C)  create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D)  All of the above are correct. 
A)  represent an action taken by the Federal Reserve. 
B)  shift the AD curve to the left. 
C)  create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D)  All of the above are correct.

Question 8

Critics of stabilization policy argue that

Accepted Answer

A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand. 
A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand.

Question 9

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 10

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A)  an increase in investment spending. 
B)  an increase in national savings. 
C)  an increase in private savings. 
D)  an increase in personal consumption. 
A)  an increase in investment spending. 
B)  an increase in national savings. 
C)  an increase in private savings. 
D)  an increase in personal consumption.

Question 11

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits. 
A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits.

Question 12

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Accepted Answer

A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls. 
A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls.

Question 13

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D)  All of the above are correct. 
A)  shifts the aggregate demand curve to the right. 
B)  has a multiplier effect. 
C)  shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D)  All of the above are correct.

Question 14

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)  increases, interest rates increase, and investment decreases. 
B)  increases, interest rates decrease, and investment increases. 
C)  decreases, interest rates increase, and investment increases. 
D)  decreases, interest rates decrease, and investment decreases. 
A)  increases, interest rates increase, and investment decreases. 
B)  increases, interest rates decrease, and investment increases. 
C)  decreases, interest rates increase, and investment increases. 
D)  decreases, interest rates decrease, and investment decreases.

Question 15

Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate- demand curve is correct?

Accepted Answer

A)  The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B)  The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C)  The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D)  None of the above is correct. 
A)  The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B)  The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C)  The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D)  None of the above is correct.

Question 16

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/MPC. 
B)  1/1 - MP
C) . 
C)  MPC/1 - MP
C) . 
D)  1 - MP
C) /MPC. 
A)  1/MPC. 
B)  1/1 - MP
C) . 
C)  MPC/1 - MP
C) . 
D)  1 - MP
C) /MPC.

Question 17

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds 
A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds

Question 18

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 19

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

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 20

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

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

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Critics of stabilization policy argue that

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

Critics of stabilization policy argue that

Shifts in aggregate demand affect the price level in

A reduction in personal income taxes increases Aggregate Demand through

Keynes used the term "animal spirits" to refer to

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

An increase in government spending on goods to build or repair infrastructure

The most important reason for the slope of the aggregate-demand curve is that as the price level

Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate- demand curve is correct?

The multiplier for changes in government spending is calculated as

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

What is the value of the multiplier if the marginal propensity to consume is 0.5?

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

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

To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

An increase in households' desired money holding causes an) _ in interest rates. This causes an) _ in investment spending and aggregate demand.

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.