Question 1

As the interest rate falls,

Accepted Answer

A)  the quantity of money demanded falls, which would reduce a shortage. 
B)  the quantity of money demanded falls, which would reduce a surplus. 
C)  the quantity of money demanded rises, which would reduce a shortage. 
D)  the quantity of money demanded rises, which would reduce a surplus. 
A)  the quantity of money demanded falls, which would reduce a shortage. 
B)  the quantity of money demanded falls, which would reduce a surplus. 
C)  the quantity of money demanded rises, which would reduce a shortage. 
D)  the quantity of money demanded rises, which would reduce a surplus.

Question 2

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

Accepted Answer

A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves. 
A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves.

Question 3

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

Accepted Answer

output, pr

Question 4

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise. 
A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise.

Question 5

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect, but not the crowding-out effect 
C)  the crowding-out effect, but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect 
A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect, but not the crowding-out effect 
C)  the crowding-out effect, but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect

Question 6

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct. 
A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct.

Question 7

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 8

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills. 
A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills.

Question 9

Assume the MPC is 0.72. The multiplier is

Accepted Answer

A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57. 
A)  4.53. 
B)  1.39. 
C)  2.57. 
D)  3.57.

Question 10

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A)  the interest-rate effect. 
B)  the exchange-rate effect. 
C)  the theory of liquidity preference. 
D)  the wealth effect. 
A)  the interest-rate effect. 
B)  the exchange-rate effect. 
C)  the theory of liquidity preference. 
D)  the wealth effect.

Question 11

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply 
A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply

Question 12

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 graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect. 
A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect.

Question 13

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.

Question 14

If the MPC is 0, then the multiplier is

Accepted Answer

A)  0. 
B)  1. 
C)  infinite. 
D)  None of the above is correct. 
A)  0. 
B)  1. 
C)  infinite. 
D)  None of the above is correct.

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

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 17

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures, but not a change in the price level 
D)  a decrease in the price level, but not an increase in government expenditures

Question 18

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 19

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money. 
A)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks will respond by lowering the interest rates they offer. 
D)  there is a shortage of money.

Question 20

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

As the interest rate falls,

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

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

During periods of expansion, automatic stabilizers cause government expenditures

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

It is likely that a constitutional amendment that required the government always to run a balanced budget would

If the MPC is 4/5, the multiplier is 5/4.

The Federal Funds rate is the interest rate

Assume the MPC is 0.72. The multiplier is

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Which of the following shifts aggregate demand to the right?

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

If the MPC is 0, then the multiplier is

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

Which of the following events shifts aggregate demand rightward?

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Fiscal policy affects the economy

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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

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