Question 1

Keynes argued that

Accepted Answer

A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct. 
A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. 
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply. 
C)  changes in business and consumer expectations generally stabilize the economy. 
D)  All of the above are correct.

Question 2

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200. 
A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200.

Question 3

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. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?

Accepted Answer

A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000. 
A)  When r = r2, nominal output is higher than it is when r = r1. 
B)  When r = r2, real output is higher than it is when r = r1. 
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.

Question 4

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A)  people want to hold more money. This response is shown by moving to the right along the money demand curve. 
B)  people want to hold more money. This response is shown by shifting the money demand curve right. 
C)  people want to hold less money. This response is shown by moving to the left along the money demand curve. 
D)  people want to hold less money. This response is shown by shifting the money demand curve left. 
A)  people want to hold more money. This response is shown by moving to the right along the money demand curve. 
B)  people want to hold more money. This response is shown by shifting the money demand curve right. 
C)  people want to hold less money. This response is shown by moving to the left along the money demand curve. 
D)  people want to hold less money. This response is shown by shifting the money demand curve left.

Question 5

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases. 
A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases.

Question 6

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits. 
A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits.

Question 7

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar. 
A)  raises the opportunity cost of holding dollars. 
B)  induces households to increase consumption. 
C)  shifts money demand to the right. 
D)  leads to a depreciation of the U.S. dollar.

Question 8

A tax cut shifts aggregate demand

Accepted Answer

A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct. 
A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct.

Question 9

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0 
A)  r = 0.06, P = 1.2 
B)  r = 0.05, P = 1.0 
C)  r = 0.04, P = 1.2 
D)  r = 0.06, P = 1.0

Question 10

When the Fed decreases 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

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. What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output 
A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output

Question 12

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending. 
A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending.

Question 13

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 14

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds 
A)  only the nominal interest rate 
B)  both the nominal interest rate and the real interest rate 
C)  only the interest rate on long-term bonds 
D)  only the interest rate on short-term government bonds

Question 15

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate. 
A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate.

Question 16

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises. 
A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises.

Question 17

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 18

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate. 
A)  size of the money supply. 
B)  growth rate of the money supply. 
C)  federal funds rate. 
D)  discount rate.

Question 19

An increase in the MPC

Accepted Answer

A)  increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
A)  increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
B)  increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. 
C)  decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. 
D)  decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

Question 20

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need

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

Keynes argued that

If the MPC is 5/6 then the multiplier is

According to the theory of liquidity preference, if the interest rate rises

The multiplier effect is exemplified by the multiplied impact on

Keynes used the term "animal spirits" to refer to

An increase in the U.S. interest rate

A tax cut shifts aggregate demand

In which of the following cases would the quantity of money demanded be smallest?

When the Fed decreases the money supply, we expect

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

The interest rate falls if

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

In recent years, the Federal Reserve has conducted policy by setting a target for the

An increase in the MPC

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

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

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.