Question 1

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause an) in interest rates...

Question 2

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. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock­market boom increases households' wealth by $500, and there is an operative crowding­out effect. 
B)  A stock­market boom increases households' wealth by $575, and there is an operative crowding­out effect. 
C)  An economic boom overseas increases the demand for U.S. net exports by $600, and there is no crowding- out effect. 
D)  Aggregate demand could increase by $1,500 in response to any of these events.

Question 3

Changes in the interest rate help explain

Accepted Answer

A)  only the slope of, not shifts of aggregate demand. 
B)  only shifts of, not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand.

Question 4

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 5

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending. 
B)  increases the money supply and thereby reduces interest rates. 
C)  increases income and thereby increases consumer spending. 
D)  decreases income and thereby increases consumer spending.

Question 6

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 MD1 to MD2 could be a result of

Accepted Answer

A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct.

Question 7

Consider the following sequence of events: price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑
⇒ quantity of goods and services demanded ↓
Τhis sequence explains why the

Accepted Answer

A)  money-supply curve is vertical. 
B)  aggregate-demand curve shifts leftward in response to a monetary injection. 
C)  aggregate-demand curve shifts rightward in response to a monetary injection. 
D)  aggregate-demand curve slopes downward.

Question 8

According to liquidity preference theory, if the price level

Accepted Answer

A)  fell, the interest rate would rise, and induce investment spending to rise. 
B)  fell, the interest rate would fall, and induce investment spending to fall. 
C)  rose, the interest rate would rise, and induce investment spending to fall. 
D)  rose, the interest rate would fall, and induce investment spending to rise.

Question 9

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct.

Question 10

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.

Question 11

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money

Question 12

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 r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate. 
C)  the aggregate-demand curve will shift to the right. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand