Question 1

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 2

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Accepted Answer

A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate. 
A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate.

Question 3

Which among the following assets is the most liquid?

Accepted Answer

A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  shares of stock 
A)  corporate bonds 
B)  fine art 
C)  deposits that can be withdrawn using ATMs 
D)  shares of stock

Question 4

During recessions, taxes tend to

Accepted Answer

A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand. 
A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand.

Question 5

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 6

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply 
A)  repeal an investment tax credit or increase the money supply 
B)  repeal an investment tax credit or decrease the money supply 
C)  institute an investment tax credit or increase the money supply 
D)  institute an investment tax credit or decrease the money supply

Question 7

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds. 
A)  the Federal Reserve could increase the money supply by buying bonds. 
B)  the Federal Reserve could increase the money supply by selling bonds. 
C)  the Federal Reserve could decrease the money supply by buying bonds. 
D)  the Federal Reserve could decrease the money supply by selling bonds.

Question 8

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 9

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time. 
A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.

Question 10

According to the theory of liquidity preference, a decrease in the price level causes the

Accepted Answer

A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise. 
A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise.

Question 11

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect. 
A)  multiplier effect. 
B)  crowding-out effect. 
C)  accelerator effect. 
D)  Ricardian equivalence effect.

Question 12

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds. 
A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds.

Question 13

The most important automatic stabilizer is

Accepted Answer

A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits. 
A)  open-market operations. 
B)  the tax system. 
C)  unemployment compensation. 
D)  welfare benefits.

Question 14

Which among the following assets is the most liquid?

Accepted Answer

A)  capital goods 
B)  stocks and bonds with a low risk 
C)  real estate 
D)  funds in a checking account 
A)  capital goods 
B)  stocks and bonds with a low risk 
C)  real estate 
D)  funds in a checking account

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. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation 
A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation

Question 16

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct. 
A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct.

Question 17

According to liquidity preference theory, the money-supply curve is

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 18

In the long run, fiscal policy influences

Accepted Answer

A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function. 
A)  saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function. 
B)  saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services. 
C)  technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth. 
D)  the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.

Question 19

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th

Question 20

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct. 
A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct.

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

The Fed can influence the money supply by

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Which among the following assets is the most liquid?

During recessions, taxes tend to

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

According to the theory of liquidity preference, a decrease in the price level causes the

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

If the Federal Reserve increases the money supply, then initially there is a

The most important automatic stabilizer is

Which among the following assets is the most liquid?

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

According to liquidity preference theory, the money-supply curve is

In the long run, fiscal policy influences

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Other things the same, which of the following happens if the price level rises?

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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