Question 1

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time. 
A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.

Question 2

According to the theory of liquidity preference, money demand

Accepted Answer

A)  and the money supply are positively related to the interest rate. 
B)  and the money supply are negatively related to the interest rate. 
C)  is negatively related to the interest rate, while the money supply is independent of the interest rate. 
D)  is independent of the interest rate, while money supply is negatively related to the interest rate. 
A)  and the money supply are positively related to the interest rate. 
B)  and the money supply are negatively related to the interest rate. 
C)  is negatively related to the interest rate, while the money supply is independent of the interest rate. 
D)  is independent of the interest rate, while money supply is negatively related to the interest rate.

Question 3

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)  The actual MPC was larger than the MPC the aide used to compute the multiplier. 
B)  The aide thought the tax cut would be permanent, but the actual tax cut was temporary. 
C)  The increase in income shifted money demand less than the aide had anticipated. 
D)  The increase in income resulted in investment rising more than the aide had anticipated. 
A)  The actual MPC was larger than the MPC the aide used to compute the multiplier. 
B)  The aide thought the tax cut would be permanent, but the actual tax cut was temporary. 
C)  The increase in income shifted money demand less than the aide had anticipated. 
D)  The increase in income resulted in investment rising more than the aide had anticipated.

Question 4

Which of the following reduces the interest rate?

Accepted Answer

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

Question 5

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Accepted Answer

A)  operating at full capacity. 
B)  in recession. 
C)  experiencing zero inflation. 
D)  experiencing high rates of inflation. 
A)  operating at full capacity. 
B)  in recession. 
C)  experiencing zero inflation. 
D)  experiencing high rates of inflation.

Question 6

According to classical macroeconomic theory,

Accepted Answer

A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C)  given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D)  All of the above are correct. 
A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. 
C)  given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. 
D)  All of the above are correct.

Question 7

Figure 34-1  
-Refer to Figure 34-1. If the current interest rate is 2 percent,

Accepted Answer

A)  there is an excess supply of money. 
B)  people will sell more bonds, which drives interest rates up. 
C)  as the money market moves to equilibrium, people will buy more goods. 
D)  All of the above are correct. 
A)  there is an excess supply of money. 
B)  people will sell more bonds, which drives interest rates up. 
C)  as the money market moves to equilibrium, people will buy more goods. 
D)  All of the above are correct.

Question 8

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level 
A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level

Question 9

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Accepted Answer

A)  purchasing government bonds. This action will reduce investment and shift aggregate demand to the right. 
B)  purchasing government bonds. This action will increase investment and shift aggregate demand to the right. 
C)  selling government bonds. This action will reduce investment and shift aggregate demand to the left. 
D)  selling government bonds. This action will increase investment and shift aggregate demand to the left. 
A)  purchasing government bonds. This action will reduce investment and shift aggregate demand to the right. 
B)  purchasing government bonds. This action will increase investment and shift aggregate demand to the right. 
C)  selling government bonds. This action will reduce investment and shift aggregate demand to the left. 
D)  selling government bonds. This action will increase investment and shift aggregate demand to the left.

Question 10

In the long run, fiscal policy primarily affects

Accepted Answer

A)  aggregate demand. In the short run, it affects primarily aggregate supply. 
B)  aggregate supply. In the short run, it affects primarily saving, investment, and growth. 
C)  saving, investment, and growth. In the short run, it affects primarily aggregate demand. 
D)  saving, investment, and growth. In the short run, it affects primarily aggregate supply. 
A)  aggregate demand. In the short run, it affects primarily aggregate supply. 
B)  aggregate supply. In the short run, it affects primarily saving, investment, and growth. 
C)  saving, investment, and growth. In the short run, it affects primarily aggregate demand. 
D)  saving, investment, and growth. In the short run, it affects primarily aggregate supply.

Question 11

The process of the investment accelerator involves

Accepted Answer

A)  positive feedback from aggregate demand to investment. 
B)  negative feedback from aggregate demand to investment. 
C)  positive feedback from aggregate supply to investment. 
D)  negative feedback from aggregate supply to investment. 
A)  positive feedback from aggregate demand to investment. 
B)  negative feedback from aggregate demand to investment. 
C)  positive feedback from aggregate supply to investment. 
D)  negative feedback from aggregate supply to investment.

Question 12

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct. 
A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct.

Question 13

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Accepted Answer

A)  $60.25. 
B)  $60.75. 
C)  $61.33. 
D)  $64.00. 
A)  $60.25. 
B)  $60.75. 
C)  $61.33. 
D)  $64.00.

Question 14

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct. 
A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct.

Question 15

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary,

Question 16

If the Fed conducts open-market sales, which of the following quantities increase(s)?

Accepted Answer

A)  interest rates, prices, and investment spending 
B)  interest rates and prices, but not investment spending 
C)  interest rates and investment, but not prices 
D)  interest rates, but not investment or prices 
A)  interest rates, prices, and investment spending 
B)  interest rates and prices, but not investment spending 
C)  interest rates and investment, but not prices 
D)  interest rates, but not investment or prices

Question 17

If the government cuts the tax rate, workers get to keep

Accepted Answer

A)  less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
B)  less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
C)  more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
D)  more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
A)  less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
B)  less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. 
C)  more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. 
D)  more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

Question 18

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 19

Liquidity preference theory is most relevant to the

Accepted Answer

A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Question 20

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

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

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

According to the theory of liquidity preference, money demand

Which of the following reduces the interest rate?

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

According to classical macroeconomic theory,

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

In the long run, fiscal policy primarily affects

The process of the investment accelerator involves

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

According to liquidity preference theory, the money-supply curve would shift rightward

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

If the Fed conducts open-market sales, which of the following quantities increase(s)?

If the government cuts the tax rate, workers get to keep

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Liquidity preference theory is most relevant to the

The ease with which an asset can be converted into the medium of exchange is known as _____.

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 Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.