Question 1

Critics of stabilization policy argue that

Accepted Answer

A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth. 
A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth.

Question 2

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct. 
A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate rises. 
D)  All of the above are correct.

Question 3

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 4

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. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.64. 
B)  0.83. 
C)  0.56. 
D)  0.840. 
A)  0.64. 
B)  0.83. 
C)  0.56. 
D)  0.840.

Question 5

Figure 34-12  
-Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-12  
-Refer to Figure 34-12....

Question 6

If the inflation rate is zero, then

Accepted Answer

A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero. 
A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero.

Question 7

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

Accepted Answer

A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion. 
A)  demand rightward by more than $100 billion. 
B)  demand rightward by less than $100 billion. 
C)  supply leftward by more than $100 billion. 
D)  supply leftward by less than $100 billion.

Question 8

When the interest rate is below the equilibrium level,

Accepted Answer

A)  the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct. 
A)  the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct.

Question 9

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income. 
A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income.

Question 10

Monetary policy and fiscal policy influence

Accepted Answer

A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only. 
A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only.

Question 11

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 3 and the government increases its purchases by $25 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. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $15 billion. 
B)  $40 billion. 
C)  $35 billion. 
D)  $95 billion. 
A)  $15 billion. 
B)  $40 billion. 
C)  $35 billion. 
D)  $95 billion.

Question 12

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 13

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/MPC. 
B)  1/(1 - MP
C) . 
C)  MPC/(1 - MP
C) . 
D)  (1 - MP
C) /MPC. 
A)  1/MPC. 
B)  1/(1 - MP
C) . 
C)  MPC/(1 - MP
C) . 
D)  (1 - MP
C) /MPC.

Question 14

If the stock market booms, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply. 
A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply.

Question 15

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. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment. 
A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 16

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Accepted Answer

increases,

Question 17

Which of the following is an example of crowding out?

Accepted Answer

A)  An increase in government spending increases interest rates, causing investment to fall. 
B)  A decrease in private savings increases interest rates, causing investment to fall. 
C)  A decrease in the money supply increases interest rates, causing investment to fall. 
D)  An increase in taxes increases interest rates, causing investment to fall. 
A)  An increase in government spending increases interest rates, causing investment to fall. 
B)  A decrease in private savings increases interest rates, causing investment to fall. 
C)  A decrease in the money supply increases interest rates, causing investment to fall. 
D)  An increase in taxes increases interest rates, causing investment to fall.

Question 18

If the interest rate is below the Fed's target, the Fed would

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 19

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

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

Question 20

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession. 
A)  increased interest rates, and the economy avoided a recession. 
B)  increased interest rates, but the economy was unable to avoid a recession. 
C)  decreased interest rates, and the economy avoided a recession. 
D)  decreased interest rates, but the economy was unable to avoid a recession.

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

Critics of stabilization policy argue that

Other things the same, which of the following happens if the price level rises?

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

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. The marginal propensity to consume for this economy is

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

If the inflation rate is zero, then

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

When the interest rate is below the equilibrium level,

Liquidity preference refers directly to Keynes' theory concerning

Monetary policy and fiscal policy influence

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

The multiplier for changes in government spending is calculated as

If the stock market booms, then

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Which of the following is an example of crowding out?

If the interest rate is below the Fed's target, the Fed would

Which of the following policy actions shifts the aggregate-demand curve?

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

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

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.