Question 1

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor

Question 3

When the Fed increases the money supply, we expect

Accepted Answer

A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise. 
A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise.

Question 4

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not. 
A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not.

Question 5

If the interest rate is above the Fed's target, the Fed should

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 6

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

Accepted Answer

A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases. 
A)  money demand curve rightward, so the interest rate increases. 
B)  money demand curve rightward, so the interest rate decreases. 
C)  money demand curve leftward, so the interest rate decreases. 
D)  money demand curve leftward, so the interest rate increases.

Question 7

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Accepted Answer

A)  the equilibrium interest rate increases. 
B)  the aggregate-demand curve shifts to the right. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the short-run aggregate-supply curve shifts to the left. 
A)  the equilibrium interest rate increases. 
B)  the aggregate-demand curve shifts to the right. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the short-run aggregate-supply curve shifts to the left.

Question 8

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment 
A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment

Question 9

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve 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 10

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

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

Question 11

The Employment Act of 1946

Accepted Answer

A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct 
A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct

Question 12

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar. 
A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar.

Question 13

Figure 34-13  
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13  
-Refer to Figure 34-13....

Question 14

A 2009 article in The Economist noted that

Accepted Answer

A)  recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision. 
B)  research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts. 
C)  most of the evidence on multipliers for government spending is based on changes in military expenditures. 
D)  All of the above are correct. 
A)  recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision. 
B)  research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts. 
C)  most of the evidence on multipliers for government spending is based on changes in military expenditures. 
D)  All of the above are correct.

Question 15

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. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.64. 
B)  0.83. 
C)  0.56. 
D)  0.840. 
A)  0.64. 
B)  0.83. 
C)  0.56. 
D)  0.840.

Question 16

The Kennedy tax cut of 1964 was

Accepted Answer

A)  successful in stimulating the economy. 
B)  designed to shift the aggregate demand curve to the right. 
C)  designed to shift the aggregate supply curve to the right. 
D)  All of the above are correct. 
A)  successful in stimulating the economy. 
B)  designed to shift the aggregate demand curve to the right. 
C)  designed to shift the aggregate supply curve to the right. 
D)  All of the above are correct.

Question 17

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Question 18

If the stock market crashes, then

Accepted Answer

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

Question 19

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Accepted Answer

increases,

Question 20

Figure 34-7  
-Refer to Figure 34-7. Which of the following is correct?

Accepted Answer

A)  Unemployment rises as the economy moves from point a to point b. 
B)  Either fiscal or monetary policy could be used to move the economy from point b to point a. 
C)  If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther. 
D)  All of the above are correct. 
A)  Unemployment rises as the economy moves from point a to point b. 
B)  Either fiscal or monetary policy could be used to move the economy from point b to point a. 
C)  If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther. 
D)  All of the above are correct.

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

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Explain how unemployment insurance acts as an automatic stabilizer.

When the Fed increases the money supply, we expect

In recent years, the Fed has chosen to target interest rates rather than the money supply because

If the interest rate is above the Fed's target, the Fed should

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

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

The Employment Act of 1946

An increase in the U.S. interest rate

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

A 2009 article in The Economist noted that

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. The marginal propensity to consume for this economy is

The Kennedy tax cut of 1964 was

According to liquidity preference theory, if there were a surplus of money, then

If the stock market crashes, then

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

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 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.