Question 1

In the short run, open-market sales

Accepted Answer

A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP. 
A)  increase the price level and real GDP. 
B)  decrease the price level and real GDP. 
C)  increases the price level and decreases real GDP. 
D)  decreases the price level and increases real GDP.

Question 2

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 3

According to liquidity preference theory,

Accepted Answer

A)  an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward. 
A)  an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right. 
B)  an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward. 
C)  an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward. 
D)  an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.

Question 4

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

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

Question 5

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 6

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not. 
A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not.

Question 7

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. 
A)  When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.

Question 8

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income. 
A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.

Question 9

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply 
A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply

Question 10

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Accepted Answer

A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply. 
A)  buy bonds to increase the money supply. 
B)  buy bonds to decrease the money supply. 
C)  sell bonds to increase the money supply. 
D)  sell bonds to decrease the money supply.

Question 11

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. 
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. 
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. 
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

Question 12

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1

Question 13

Which of the following Fed actions would both decrease the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement 
A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement

Question 14

When the Fed lowers the growth rate of the money supply, it must take into account

Accepted Answer

A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production. 
A)  only the short-run effect on production. 
B)  only the short-run effects on inflation and production. 
C)  only the long-run effect on inflation. 
D)  the long-run effect on inflation as well as the short-run effect on production.

Question 15

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct. 
A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct.

Question 16

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 17

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 18

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

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

Question 19

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion. 
A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion.

Question 20

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)  the tax increase reduces consumption; the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption; the change in the interest rate raises residential construction 
C)  the tax increase raises consumption; the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption; the change in the interest rate reduces residential construction 
A)  the tax increase reduces consumption; the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption; the change in the interest rate raises residential construction 
C)  the tax increase raises consumption; the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption; the change in the interest rate reduces residential construction

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

In the short run, open-market sales

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

According to liquidity preference theory,

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

During recessions, the government tends to run a budget deficit.

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

The primary argument against active monetary and fiscal policy is that

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Which of the following Fed actions would both decrease the money supply?

When the Fed lowers the growth rate of the money supply, it must take into account

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Which of the following are effects of an increase in government spending financed by a tax increase?

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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