Question 1

People will want to hold more money if the price level

Accepted Answer

A)  or if the interest rate increases. 
B)  or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  or if the interest rate increases. 
B)  or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 2

The positive feedback from aggregate demand to investment is called

Accepted Answer

A)  the investment multiplier. 
B)  the crowding-out effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier. 
A)  the investment multiplier. 
B)  the crowding-out effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier.

Question 3

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money. 
A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money.

Question 4

People hold money primarily because it

Accepted Answer

A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account. 
A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account.

Question 5

The short-run effects on the interest rate are

Accepted Answer

A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory. 
A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory.

Question 6

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

Question 7

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory. 
A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory.

Question 8

The Employment Act of 1946

Accepted Answer

A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct 
A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct

Question 9

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin 
A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin

Question 10

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 11

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)  increasing the money supply, which raises interest rates. 
B)  increasing the money supply, which lowers interest rates. 
C)  decreasing the money supply, which raises interest rates. 
D)  decreasing the money supply, which lowers interest rates. 
A)  increasing the money supply, which raises interest rates. 
B)  increasing the money supply, which lowers interest rates. 
C)  decreasing the money supply, which raises interest rates. 
D)  decreasing the money supply, which lowers interest rates.

Question 12

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply 
A)  increase taxes or increase the money supply 
B)  increase taxes or decrease the money supply 
C)  decrease taxes or increase the money supply 
D)  decrease taxes or decrease the money supply

Question 13

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)  an increase in the money supply and an increase in government purchases. 
B)  an increase in the money supply and a decrease in government purchases. 
C)  a decrease in the money supply and an increase in government purchases. 
D)  a decrease in the money supply and a decrease in government purchases. 
A)  an increase in the money supply and an increase in government purchases. 
B)  an increase in the money supply and a decrease in government purchases. 
C)  a decrease in the money supply and an increase in government purchases. 
D)  a decrease in the money supply and a decrease in government purchases.

Question 14

People will want to hold less money if the price level

Accepted Answer

A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases. 
A)  increases or if the interest rate increases. 
B)  decreases or if the interest rate decreases. 
C)  increases or if the interest rate decreases. 
D)  decreases or if the interest rate increases.

Question 15

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

Figure 34-10  
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

The answer of Figure 34-10  
-Refer to Figure 34-10....

Question 17

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion 
A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion

Question 18

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct. 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct.

Question 19

Scenario 34-2. The following facts apply to a small, imaginary economy.
-Consumption spending is $6,720 when income is $8,000.
-Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect. 
A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B)  A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. 
D)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.

Question 20

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

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

People will want to hold more money if the price level

The positive feedback from aggregate demand to investment is called

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

People hold money primarily because it

The short-run effects on the interest rate are

The government's choices regarding the overall level of government purchases and taxes is known as _____.

The theory of liquidity preference is most helpful in understanding

The Employment Act of 1946

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

People will want to hold less money if the price level

An increase in the money supply shifts the aggregate-supply curve to the right.

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Scenario 34-2. The following facts apply to a small, imaginary economy. -Consumption spending is $6,720 when income is $8,000. -Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

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

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