Question 1

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 2

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Accepted Answer

A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls. 
A)  As the money supply increases, the interest rate falls, so spending rises. 
B)  As the money supply increases, the interest rate rises, so spending falls. 
C)  As the price level increases, the interest rate falls, so spending rises. 
D)  As the price level increases, the interest rate rises, so spending falls.

Question 3

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero. 
A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero.

Question 4

To reduce aggregate demand, the government may reduce or increase .

Accepted Answer

government

Question 5

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 6

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants. 
A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question 7

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 8

The Employment Act of 1946 states that

Accepted Answer

A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct. 
A)  the Fed should use monetary policy only to control the rate of inflation. 
B)  the government should promote full employment and production. 
C)  the government should periodically increase the minimum wage and unemployment insurance benefits. 
D)  All of the above are correct.

Question 9

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 10

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

increase t

Question 11

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion 
A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion

Question 12

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Accepted Answer

A)  right by more than $100 billion. 
B)  right by $100 billion. 
C)  left by more than $100 billion. 
D)  left by $100 billion. 
A)  right by more than $100 billion. 
B)  right by $100 billion. 
C)  left by more than $100 billion. 
D)  left by $100 billion.

Question 13

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 14

Most economists believe that a cut in tax rates

Accepted Answer

A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct. 
A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct.

Question 15

Figure 34-6. 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 34-6. Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $75 billion. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion. 
A)  $75 billion. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion.

Question 16

Unemployment insurance benefits are an example of .

Accepted Answer

automatic

Question 17

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases. 
A)  firms may believe the relative price of their output has risen. 
B)  real wealth declines. 
C)  the interest rate increases. 
D)  the exchange rate increases.

Question 18

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate. 
A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate. 
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.

Question 19

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall, so aggregate demand shifts right. 
B)  the interest rate to fall, so aggregate demand shifts left. 
C)  the interest rate to rise, so aggregate demand shifts right. 
D)  the interest rate to rise, so aggregate demand shifts left. 
A)  the interest rate to fall, so aggregate demand shifts right. 
B)  the interest rate to fall, so aggregate demand shifts left. 
C)  the interest rate to rise, so aggregate demand shifts right. 
D)  the interest rate to rise, so aggregate demand shifts left.

Question 20

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

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

If the stock market crashes, then

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

During the economic downturn of 2008-2009, the Federal Reserve

To reduce aggregate demand, the government may reduce or increase .

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.

Which of the following illustrates how the investment accelerator works?

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

The Employment Act of 1946 states that

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Which of the following events would shift money demand to the right?

Most economists believe that a cut in tax rates

Unemployment insurance benefits are an example of .

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

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

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.