Question 1

Keynes argued that aggregate demand is

Accepted Answer

A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations. 
A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations.

Question 2

Other things the same, a decrease in the U.S. interest rate

Accepted Answer

A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars. 
A)  induces firms to invest more. 
B)  shifts money demand to the left. 
C)  makes the U.S. dollar appreciate. 
D)  increases the opportunity cost of holding dollars.

Question 3

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 4

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds. 
A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds.

Question 5

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. As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)  the price level is held fixed at P1. 
B)  the interest rate is held fixed at r1. 
C)  the money supply is changing so as to keep the money market in equilibrium. 
D)  the expected inflation rate is changing so as to keep the real interest rate constant. 
A)  the price level is held fixed at P1. 
B)  the interest rate is held fixed at r1. 
C)  the money supply is changing so as to keep the money market in equilibrium. 
D)  the expected inflation rate is changing so as to keep the real interest rate constant.

Question 6

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 7

Figure 34-14  
-Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-14  
-Refer to Figure 34-14....

Question 8

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Accepted Answer

A)  right by $130 billion. 
B)  right by $70 billion. 
C)  right by $50 billion. 
D)  right by $10 billion. 
A)  right by $130 billion. 
B)  right by $70 billion. 
C)  right by $50 billion. 
D)  right by $10 billion.

Question 9

Paul Samuelson, a famous economist, said that

Accepted Answer

A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions." 
A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions."

Question 10

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)  monetary policy. 
B)  crowding out. 
C)  the investment accelerator. 
D)  the multiplier. 
A)  monetary policy. 
B)  crowding out. 
C)  the investment accelerator. 
D)  the multiplier.

Question 11

An increase in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases. 
A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases.

Question 12

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 13

If the Fed conducts open-market sales, the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 14

Figure 34-13  
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13  
-Refer to Figure 34-13....

Question 15

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

Accepted Answer

A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate. 
A)  bank reserves. 
B)  the monetary growth rate. 
C)  the exchange rate. 
D)  the federal funds rate.

Question 16

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion. 
A)  left by about $30.77 billion. 
B)  left by about $57.1 billion. 
C)  right by about $57.1 billion. 
D)  right by about $30.77 billion.

Question 17

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 18

If the stock market crashes, then

Accepted Answer

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

Question 19

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible. 
A)  shift aggregate demand right by a larger amount than the increase in government expenditures. 
B)  shift aggregate demand right by the same amount as the increase in government expenditures. 
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures. 
D)  Any of the above outcomes are possible.

Question 20

Which of the following is an example of an increase in government purchases?

Accepted Answer

A)  The government builds new roads. 
B)  The Federal Reserve purchases government bonds. 
C)  The government decreases personal income taxes. 
D)  The government increases unemployment insurance benefit payments. 
A)  The government builds new roads. 
B)  The Federal Reserve purchases government bonds. 
C)  The government decreases personal income taxes. 
D)  The government increases unemployment insurance benefit payments.

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

Keynes argued that aggregate demand is

Other things the same, a decrease in the U.S. interest rate

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

According to liquidity preference theory, the opportunity cost of holding money is

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Paul Samuelson, a famous economist, said that

The idea that expansionary fiscal policy has a positive affect on investment is known as

An increase in government spending

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

If the Fed conducts open-market sales, the money supply

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

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

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

If the stock market crashes, then

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Which of the following is an example of an increase in government purchases?

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 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.