Question 1

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Accepted Answer

A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase. 
A)  sell interest-bearing assets, causing the interest rate to decrease. 
B)  sell interest-bearing assets, causing the interest rate to increase. 
C)  buy interest-bearing assets, causing the interest rate to decrease. 
D)  buy interest-bearing assets, causing the interest rate to increase.

Question 2

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)  "Today the Fed told its bond traders to conduct open­market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent." 
B)  "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount." 
C)  "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent." 
D)  "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent." 
A)  "Today the Fed told its bond traders to conduct open­market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent." 
B)  "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount." 
C)  "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent." 
D)  "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent."

Question 3

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 4

The multiplier for changes in government spending is calculated as

Accepted Answer

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

Question 5

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth. 
A)  the price level. 
B)  the interest rate. 
C)  the exchange rate. 
D)  real wealth.

Question 6

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.

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. 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 8

Figure 34-11  
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Accepted Answer

government

Question 9

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion. 
A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion.

Question 10

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 11

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 12

In the short run, open-market purchases

Accepted Answer

A)  increase investment and real GDP, and decrease nominal interest rates. 
B)  increase real GDP and nominal interest rates, and decrease investment. 
C)  increase investment and nominal interest rates, and decrease real GDP. 
D)  decrease investment, nominal interest rates, and real GDP. 
A)  increase investment and real GDP, and decrease nominal interest rates. 
B)  increase real GDP and nominal interest rates, and decrease investment. 
C)  increase investment and nominal interest rates, and decrease real GDP. 
D)  decrease investment, nominal interest rates, and real GDP.

Question 13

As real GDP falls,

Accepted Answer

A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls. 
A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls.

Question 14

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 15

Monetary policy is determined by

Accepted Answer

A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply. 
A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply.

Question 16

Opponents of active stabilization policy

Accepted Answer

A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct. 
A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct.

Question 17

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls. 
A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls.

Question 18

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand. 
A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand.

Question 19

If the stock market booms, then

Accepted Answer

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

Question 20

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.

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

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

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?

The multiplier for changes in government spending is calculated as

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Which of the following properly describes the interest-rate effect?

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

If the Federal Reserve decided to raise interest rates, it could

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

In the short run, open-market purchases

As real GDP falls,

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

Monetary policy is determined by

Opponents of active stabilization policy

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Government purchases are said to have a

If the stock market booms, then

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

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

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.