Question 1

Assume the following.
• The MPC has a value of 0.8.
• The relationship between the interest rate,r,and investment,I,is given by the
Equation,
,
Where b is a positive constant.
• Government purchases,G,are increased by $1,000.
In which of the following cases would there be no crowding out?

Accepted Answer

A)   
B)   
C)   
D)

Question 2

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A) the money supply of a given increase in government purchases. 
B) tax revenues of a given increase in government purchases. 
C) investment of a given increase in interest rates. 
D) aggregate demand of a given increase in government purchases.

Question 3

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.

Question 4

Assume that there is no accelerator affect.The MPC = 3/4.The government increases both expenditures and taxes by $600.The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone.The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand.How much does aggregate demand shift by?

Accepted Answer

A) $1480 
B) $480 
C) $160 
D) None of the above is correct.

Question 5

Government purchases are said to have a

Accepted Answer

A) multiplier effect on aggregate supply. 
B) multiplier effect on aggregate demand. 
C) liquidity-enhancing effect on aggregate supply. 
D) liquidity-enhancing effect on aggregate demand.

Question 6

A tax cut shifts aggregate demand

Accepted Answer

A) by more than the amount of the tax cut. 
B) by the same amount as the tax cut. 
C) by less than the tax cut. 
D) None of the above is necessarily correct.

Question 7

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A) the crowding-out effect 
B) the multiplier effect 
C) the exchange-rate effect 
D) the interest-rate effect

Question 8

The term crowding-out effect refers to

Accepted Answer

A) the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B) the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C) the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D) the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.

Question 9

When taxes increase,interest rates​

Accepted Answer

A) ​increase,making the change in aggregate demand smaller. 
B) ​increase,making the change in aggregate demand larger. 
C) ​decrease,making the change in aggregate demand smaller. 
D) ​decrease,making the change in aggregate demand larger.

Question 10

Most economists believe that a cut in tax rates

Accepted Answer

A) would generally increase government tax revenue. 
B) would have no effect on aggregate demand. 
C) has a relatively small effect on the aggregate-supply curve. 
D) All of the above are correct.

Question 11

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Accepted Answer

A) assumption that increases in government purchases have no effect on consumer spending. 
B) assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred. 
C) empirical evidence that points to a value of about 3/4 for the MPC. 
D) fact that the multiplier effect is represented by an infinite geometric series.

Question 12

An increase in government spending initially and primarily shifts

Accepted Answer

A) aggregate demand to the right. 
B) aggregate demand to the left. 
C) aggregate supply to the right. 
D) neither aggregate demand nor aggregate supply in either direction.

Question 13

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.

Question 14

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A) the money supply. 
B) government spending and taxes. 
C) trade policy. 
D) All of the above are correct.

Question 15

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

Accepted Answer

A) $300 billion and $180 billion 
B) $300 billion and $300 billion 
C) $500 billion and $300 billion 
D) $500 billion and $500 billion

Question 16

If the MPC = 4/5,then the government purchases multiplier is

Accepted Answer

A) 5/4. 
B) 4/5. 
C) 5. 
D) 20.

Question 17

As the MPC gets close to 1,the value of the multiplier approaches

Accepted Answer

A) 0. 
B) 1. 
C) infinity. 
D) None of the above is correct.

Question 18

The logic of the multiplier effect applies

Accepted Answer

A) only to changes in government spending. 
B) to any change in spending on any component of GDP. 
C) only to changes in the money supply. 
D) only when the crowding-out effect is sufficiently strong.

Question 19

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

Question 20

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A) the MPC is large and if the tax cut is permanent. 
B) the MPC is large and if the tax cut is temporary. 
C) the MPC is small and if the tax cut is permanent. 
D) the MPC is small and if the tax cut is temporary.

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Fiscal Policy Influences Aggregate Demand

Assume the following. • The MPC has a value of 0.8. • The relationship between the interest rate,r,and investment,I,is given by the Equation, , Where b is a positive constant. • Government purchases,G,are increased by $1,000. In which of the following cases would there be no crowding out?

The multiplier effect is exemplified by the multiplied impact on

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?

Government purchases are said to have a

A tax cut shifts aggregate demand

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

The term crowding-out effect refers to

When taxes increase,interest rates

Most economists believe that a cut in tax rates

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

An increase in government spending initially and primarily shifts

Which of the following is an example of crowding out?

Fiscal policy refers to the idea that aggregate demand is affected by changes in

If the MPC = 4/5,then the government purchases multiplier is

As the MPC gets close to 1,the value of the multiplier approaches

The logic of the multiplier effect applies

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?

A tax cut shifts the aggregate demand curve the farthest if

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Fiscal Policy Influences Aggregate Demand

Assume the following. • The MPC has a value of 0.8. • The relationship between the interest rate,r,and investment,I,is given by the Equation, , Where b is a positive constant. • Government purchases,G,are increased by $1,000. In which of the following cases would there be no crowding out?

The multiplier effect is exemplified by the multiplied impact on

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?

Government purchases are said to have a

A tax cut shifts aggregate demand

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

The term crowding-out effect refers to

When taxes increase,interest rates​

Most economists believe that a cut in tax rates

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

An increase in government spending initially and primarily shifts

Which of the following is an example of crowding out?

Fiscal policy refers to the idea that aggregate demand is affected by changes in

If the MPC = 4/5,then the government purchases multiplier is

As the MPC gets close to 1,the value of the multiplier approaches

The logic of the multiplier effect applies

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?

A tax cut shifts the aggregate demand curve the farthest if

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?

When taxes increase,interest rates