Question 1

Why do people still hold cash in their wallets, despite the fact that they receive no returns compared to storing cash in their bank accounts?

Accepted Answer

The answer of Why do people still hold cash in...

Question 2

In the long run, the interest rate adjusts to balance the supply and demand for money, whereas in the short run, the interest rate adjusts to balance national saving and desired investment.

Accepted Answer

A) True 
 B)False

Question 3

The lag problem associated with monetary policy is due to:

Accepted Answer

A) the fact that firms make investment plans far in advance 
B) the political process 
C) the time it takes for monetary policy to affect the interest rate 
D) none of the above

Question 4

What are the impacts of an expansionary fiscal policy on output and the inflation rate in the short run? How about in the long run?

Accepted Answer

The answer of What are the impacts of an expansionary...

Question 5

If the economy is producing a real output that is less than capacity output, a(n):

Accepted Answer

A) expansionary monetary policy could be used to decrease aggregate demand and decrease the general price level 
B) contractionary monetary policy could be used to increase aggregate demand and increase the general price level 
C) contractionary monetary policy could be used to decrease aggregate demand and decrease the general price level 
D) expansionary monetary policy could be used to increase aggregate demand and increase the general price level

Question 6

Assume there is no crowding-out effect.If an increase in government spending of $10 billion raises the total aggregate demand by $50 billion, then the marginal propensity is:

Accepted Answer

A) 0.2 
B) 0.5 
C) 5 
D) 0.8

Question 7

If the marginal propensity to save is 0.3, then the corresponding marginal propensity to consume must be ____.

Accepted Answer

A) 0.7 
B) 0 
C) 1 
D) 0.5

Question 8

Define expansionary and contractionary fiscal policy, giving examples of each.

Accepted Answer

The answer of Define expansionary and contractionary fiscal policy, giving...

Question 9

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

Accepted Answer

A) increase taxes, lower government spending, expand the money supply 
B) increase taxes, raise government spending, expand the money supply 
C) decrease taxes, raise government spending, expand the money supply 
D) decrease taxes, lower government spending, contract the money supply

Question 10

In the short run:

Accepted Answer

A) price level is fixed at some level, the level of output adjusts to balance the supply and demand for money, and the interest rate responds to changes in aggregate demand and aggregate supply 
B) level of output is fixed at some level, the price level adjusts to balance the supply and demand for money, and the interest rate responds to changes in aggregate demand and aggregate supply 
C) interest rate is fixed at some level, the price level adjusts to balance the supply and demand for money, and the level of output responds to changes in aggregate demand and aggregate supply 
D) price level is fixed at some level, the interest rate adjusts to balance the supply and demand for money, and the level of output responds to changes in aggregate demand and aggregate supply

Question 11

Why could there be a great deal of frustration for policy makers when the long-term effects of their decisions do not seem to flow through, as they wanted?

Accepted Answer

The answer of Why could there be a great deal...

Question 12

If an economy goes into an expansion, then the government's:

Accepted Answer

A) outlays (e.g.transfer payments) will automatically fall and receipts (e.g.tax revenue) will automatically rise 
B) outlays will automatically rise and receipts will automatically fall 
C) outlays and receipts will automatically rise 
D) outlays and receipts will automatically fall

Question 13

The positive feedback from demand to investment is called:

Accepted Answer

A) the investment multiplier 
B) the investment accelerator 
C) the multiplier accelerator 
D) the demand accelerator

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