Question 1

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises.
B)  The price level falls.
C)  The Fed purchases government bonds on the open market.
D)  None of the above is correct.E) A) and D)
F) A) and B)

Question 2

Unemployment insurance benefits are an example of _____.

Accepted Answer

automatic ...

Question 3

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.
. 1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? A) When r = r2, nominal output is higher than it is when r = r1. B) When r = r2, real output is higher than it is when r = r1. C) When r = r2, the expected rate of inflation is higher than it is when r = r1. D) If the velocity of money is 4 when r = r2, then the quantity of money is $3,000." class="answers-bank-image d-inline" rel="preload" > 1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? A) When r = r2, nominal output is higher than it is when r = r1. B) When r = r2, real output is higher than it is when r = r1. C) When r = r2, the expected rate of inflation is higher than it is when r = r1. D) If the velocity of money is 4 when r = r2, then the quantity of money is $3,000." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?

Accepted Answer

A)  When r = r2, nominal output is higher than it is when r = r1.
B)  When r = r2, real output is higher than it is when r = r1.
C)  When r = r2, the expected rate of inflation is higher than it is when r = r1.
D)  If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.E) None of the above
F) All of the above

Question 4

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)  r = 0.06, P = 1.2
B)  r = 0.05, P = 1.0
C)  r = 0.04, P = 1.2
D)  r = 0.06, P = 1.0E) A) and B)
F) B) and C)

Question 5

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 6

If the Fed conducts open-market purchases, 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.E) All of the above
F) None of the above

Question 7

If Congress increases taxes to balance the federal budget, then to prevent additional unemployment and a recession the Fed can

Accepted Answer

A)  reduce interest rates by increasing the money supply.
B)  increase interest rates by decreasing the money supply.
C)  increase interest rates by increasing the money supply.
D)  reduce interest rates by decreasing the money supply.E) C) and D)
F) None of the above

Question 8

Which of the following Fed actions would both decrease the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement
B)  buy bonds and lower the reserve requirement
C)  sell bonds and raise the reserve requirement
D)  sell bonds and lower the reserve requirementE) B) and C)
F) B) and D)

Question 9

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Accepted Answer

A)  purchase government bonds, which will increase the money supply.
B)  purchase government bonds, which will reduce the money supply.
C)  sell government bonds, which will increase the money supply.
D)  sell government bonds, which will reduce the money supply.E) A) and D)
F) None of the above

Question 10

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks.
B)  changing the interest rate it pays banks on the reserves they are holding.
C)  using open-market operations.
D)  All of the above are correct.E) None of the above
F) B) and D)

Question 11

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 12

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

Accepted Answer

right, inc...

Question 13

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.E) B) and C)
F) A) and C)

Question 14

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 15

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.E) A) and C)
F) C) and D)

Question 16

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)  the wealth effect
B)  the interest-rate effect
C)  the exchange-rate effect
D)  the real-wage effectE) B) and C)
F) A) and C)

Question 18

According to the theory of liquidity preference,

Accepted Answer

A)  if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)  if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)  the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 19

An increase in government purchases is likely to

Accepted Answer

A)  decrease interest rates.
B)  reduce money demand.
C)  crowd out investment spending by business firms.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 20

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 does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)  the quantity of money
B)  the rate of inflation
C)  real output
D)  nominal outputE) All of the above
F) A) and C)

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

During recessions, the government tends to run a budget deficit.

Correct Answer
verified

If Congress increases taxes to balance the federal budget, then to prevent additional unemployment and a recession the Fed can

Correct Answer
verified

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Correct Answer
verified

Correct Answer
verified

According to the theory of liquidity preference, money demand

Correct Answer
verified

The Fed can influence the money supply by

Correct Answer
verified

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct Answer
verified

An increase in government purchases is likely to

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
verified

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct Answer
verified

An increase in government spending

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

A decrease in taxes will shift aggregate demand to the ___, cause consumption to _, and cause output to _. Due to the crowding-out effect, investment will ___.

Correct Answer
verified
right, inc...
View Answer

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Correct Answer
verified

Which of the following Fed actions would both decrease the money supply?

Correct Answer
verified

Unemployment insurance benefits are an example of _____.

Correct Answer
verified
automatic ...
View Answer

According to the theory of liquidity preference,

Correct Answer
verified

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

During recessions, the government tends to run a budget deficit.

Correct AnswerverifiedShow Answer

If Congress increases taxes to balance the federal budget, then to prevent additional unemployment and a recession the Fed can

Correct AnswerverifiedShow Answer

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, money demand

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by

Correct AnswerverifiedShow Answer

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct AnswerverifiedShow Answer

An increase in government purchases is likely to

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct AnswerverifiedShow Answer

An increase in government spending

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

Correct Answerverifiedright, inc...View AnswerShow Answer

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Correct AnswerverifiedShow Answer

Which of the following Fed actions would both decrease the money supply?

Correct AnswerverifiedShow Answer

Unemployment insurance benefits are an example of _____.

Correct Answerverifiedautomatic ...View AnswerShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

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Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

A decrease in taxes will shift aggregate demand to the ___, cause consumption to _, and cause output to _. Due to the crowding-out effect, investment will ___.

Correct Answer
verified
right, inc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
automatic ...
View Answer

Correct Answer
verified