Question 1

Most economists believe that a cut in tax rates

Accepted Answer

A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct. 
A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct.

Question 2

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct. 
A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct.

Question 3

People will want to hold less money if the price level

Accepted Answer

A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 4

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect. 
A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.

Question 5

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

Question 6

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate. 
A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.

Question 7

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy. 
A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy.

Question 8

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Accepted Answer

The answer of To stabilize output, the Federal Reserve will...

Question 9

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 10

Other things the same, automatic stabilizers tend to

Accepted Answer

A)  raise expenditures during expansions and recessions. 
B)  lower expenditures during expansions and recessions. 
C)  raise expenditures during recessions and lower expenditures during expansions. 
D)  raise expenditures during expansions and lower expenditures during recessions. 
A)  raise expenditures during expansions and recessions. 
B)  lower expenditures during expansions and recessions. 
C)  raise expenditures during recessions and lower expenditures during expansions. 
D)  raise expenditures during expansions and lower expenditures during recessions.

Question 11

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in aggregate demand?

Accepted Answer

A)  Raise both taxes and expenditures by $5.56 billion dollars. 
B)  Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars. 
C)  Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars. 
D)  Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars. 
A)  Raise both taxes and expenditures by $5.56 billion dollars. 
B)  Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars. 
C)  Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars. 
D)  Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.

Most economists believe that a cut in tax rates

According to liquidity preference theory, the money-supply curve would shift rightward

People will want to hold less money if the price level

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

According to the liquidity preference theory, an increase in the overall price level of 10 percent

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Which of the following statements generates the greatest amount of disagreement among economists?

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

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, automatic stabilizers tend to

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

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

Most economists believe that a cut in tax rates

According to liquidity preference theory, the money-supply curve would shift rightward

People will want to hold less money if the price level

According to the liquidity preference theory, an increase in the overall price level of 10 percent

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Which of the following statements generates the greatest amount of disagreement among economists?

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

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, automatic stabilizers tend to

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