Question 1

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)  the money supply. 
B)  government spending and taxes. 
C)  trade policy. 
D)  All of the above are correct. 
A)  the money supply. 
B)  government spending and taxes. 
C)  trade policy. 
D)  All of the above are correct.

Question 2

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r

Question 3

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Accepted Answer

The answer of When the Federal Funds rate is above...

Question 4

If the multiplier is 3, then the MPC is

Accepted Answer

A)  1/3. 
B)  3/4. 
C)  4/3. 
D)  2/3. 
A)  1/3. 
B)  3/4. 
C)  4/3. 
D)  2/3.

Question 5

If the interest rate is above 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 6

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 7

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 8

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect 
A)  the crowding-out effect 
B)  the multiplier effect 
C)  the exchange-rate effect 
D)  the interest-rate effect

Question 9

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

Accepted Answer

right, inc

Question 10

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 11

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts. 
A)  farther to the right than do temporary tax cuts. 
B)  not as far to the right as do temporary tax cuts. 
C)  farther to the left than do temporary tax cuts. 
D)  not as far to the left as do temporary tax cuts.

Question 12

If the MPC is 3/5 then the multiplier is

Accepted Answer

A)  4, so a $100 increase in government spending increases aggregate demand by $400. 
B)  1.5, so a $100 increase in government spending increases output by $150. 
C)  2.5, so a $100 increase in government spending increases aggregate demand by $250. 
D)  1.67, so a $100 increase in government spending increases output by $166.67. 
A)  4, so a $100 increase in government spending increases aggregate demand by $400. 
B)  1.5, so a $100 increase in government spending increases output by $150. 
C)  2.5, so a $100 increase in government spending increases aggregate demand by $250. 
D)  1.67, so a $100 increase in government spending increases output by $166.67.

Question 13

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Accepted Answer

A)  assumption that increases in government purchases have no effect on consumer spending. 
B)  assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred. 
C)  empirical evidence that points to a value of about 3/4 for the MPC. 
D)  fact that the multiplier effect is represented by an infinite geometric series. 
A)  assumption that increases in government purchases have no effect on consumer spending. 
B)  assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred. 
C)  empirical evidence that points to a value of about 3/4 for the MPC. 
D)  fact that the multiplier effect is represented by an infinite geometric series.

Question 14

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 15

If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels.

Question 17

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Accepted Answer

A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates. 
A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.

Question 18

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending. 
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.

Question 19

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 20

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

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

Fiscal policy refers to the idea that aggregate demand is affected by changes in

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

If the multiplier is 3, then the MPC is

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

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

During recessions, taxes tend to

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

When the Fed increases the money supply, we expect

Permanent tax cuts shift the AD curve

If the MPC is 3/5 then the multiplier is

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.

Which of the following illustrates how the investment accelerator works?

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Suppose investment spending falls. To offset the change in output the Federal Reserve could

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

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

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

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

A decrease in taxes will shift aggregate demand to the ___, cause consumption to _, and cause output to _. Due to the crowding-out effect, investment will ___.