Question 1

Other things equal, in the short run a lower price level leads households to

Accepted Answer

A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods. 
A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods.

Question 2

For the following questions, use the diagram below:
Figure 34-7  
-Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

A)  an increase in the money supply. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  All of the above are correct. 
A)  an increase in the money supply. 
B)  a decrease in government purchases. 
C)  an increase in taxes. 
D)  All of the above are correct.

Question 3

Critics of stabilization policy argue that

Accepted Answer

A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand. 
A)  policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. 
B)  policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 
C)  policy affects aggregate demand with a lag, but the effects are short-lived. 
D)  policy does not affect aggregate demand.

Question 4

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 graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct. 
A)  there would be no crowding out. 
B)  the full multiplier effect of the increase in government purchases would be realized. 
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D)  All of the above are correct.

Question 5

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds. 
A)  shortage in the money market, so people will want to sell bonds. 
B)  shortage in the money market, so people will want to buy bonds. 
C)  surplus in the money market, so people will want to sell bonds. 
D)  surplus in the money market, so people will want to buy bonds.

Question 6

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 7

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 8

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C)  price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓ 
A)  price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B)  price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C)  price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D)  price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓

Question 9

"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)  shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C)  changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
A)  shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C)  changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.

Question 10

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 11

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate. 
A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate.

Question 12

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate, but not an increase in the price level 
C)  an increase in the price level, but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 13

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 14

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Accepted Answer

A)  By themselves, both the change in output and the change in the interest rate increase desired investment. 
B)  By themselves, both the change in output and the change in the interest rate decrease desired investment. 
C)  By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D)  By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending. 
A)  By themselves, both the change in output and the change in the interest rate increase desired investment. 
B)  By themselves, both the change in output and the change in the interest rate decrease desired investment. 
C)  By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D)  By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

Question 15

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

Accepted Answer

A)  interest rates and investment spending 
B)  interest rates, but not investment spending 
C)  investment spending, but not interest rates 
D)  neither interest rates nor investment spending 
A)  interest rates and investment spending 
B)  interest rates, but not investment spending 
C)  investment spending, but not interest rates 
D)  neither interest rates nor investment spending

Question 16

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct. 
A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct.

Question 17

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 18

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one- third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)  by $90 billion 
B)  by $60 billion 
C)  by $20 billion 
D)  by $30 billion 
A)  by $90 billion 
B)  by $60 billion 
C)  by $20 billion 
D)  by $30 billion

Question 19

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction. 
A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction.

Question 20

Scenario 34-1. Take the following information as given for a small, imaginary economy:
-When income is $10,000, consumption spending is $6,500.
-When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into a(n)

Accepted Answer

A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect. 
A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect.

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

Other things equal, in the short run a lower price level leads households to

For the following questions, use the diagram below: Figure 34-7 -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Critics of stabilization policy argue that

If the Federal Reserve increases the money supply, then initially there is a

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

"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

Shifts in aggregate demand affect the price level in

The theory of liquidity preference illustrates the principle that

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

Other things equal, the higher the price level, the higher is the real wealth of households.

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

Some economists argue that

The Fed can influence the money supply by

During recessions, automatic stabilizers tend to make the government's budget

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

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.