Question 1

An increase in the money supply will

Accepted Answer

A)  increase interest rates, decreasing investment and aggregate demand.
B)  reduce interest rates, increasing investment and aggregate demand.
C)  reduce interest rates, decreasing investment and increasing aggregate demand.
D)  increase interest rates, increasing investment and aggregate demand.E) A) and D)
F) B) and D)

Question 2

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou...

Question 3

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall.
B)  and taxes to rise.
C)  to rise and taxes to fall.
D)  to fall and taxes to rise.E) A) and C)
F) None of the above

Question 4

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion.
B)  increase by $333 billion.
C)  increase by $360 billion.
D)  None of the above are correct.E) A) and D)
F) A) and C)

Question 5

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 6

Figure 34-3. 1 to Y2? A) consumption B) investment C) net exports D) government spending" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)  consumption
B)  investment
C)  net exports
D)  government spendingE) A) and B)
F) A) and C)

Question 7

If the stock market crashes, then

Accepted Answer

A)  aggregate demand decreases, which the Fed could offset by purchasing bonds.
B)  aggregate demand decreases, which the Fed could offset by selling bonds.
C)  aggregate demand increases, which the Fed could offset by selling bonds.
D)  aggregate demand increases, which the Fed could offset by purchasing the money supply.E) A) and D)
F) A) and C)

Question 8

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)  buy bonds to raise interest rates.
B)  buy bonds to lower interest rates.
C)  sell bonds to raise interest rates.
D)  sell bonds to lower interest rates.E) None of the above
F) A) and D)

Question 9

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)  increase taxes
B)  increase government expenditures
C)  increase the money supply
D)  All of the above are correct.E) None of the above
F) C) and D)

Question 10

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy.
B)  fiscal policy should actively be used to stabilize the economy.
C)  fiscal policy can be used to shift the AD curve.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Question 11

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
B)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand.
C)  $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
D)  $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.E) A) and B)
F) B) and C)

Question 12

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Accepted Answer

A)  buy bonds to increase the money supply.
B)  buy bonds to decrease the money supply.
C)  sell bonds to increase the money supply.
D)  sell bonds to decrease the money supply.E) None of the above
F) B) and D)

Question 13

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-.8) =...

Question 14

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A)  increase and the quantity of money demanded will decrease.
B)  increase and the quantity of money demanded will increase.
C)  decrease and the quantity of money demanded will decrease.
D)  decrease and the quantity of money demanded will increase.E) A) and B)
F) A) and C)

Question 15

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A)  move toward deficit.
B)  move toward surplus.
C)  move toward balance.
D)  not necessarily move the budget in any particular direction.E) C) and D)
F) B) and D)

Question 16

In the short run, open-market sales

Accepted Answer

A)  increase the price level and real GDP.
B)  decrease the price level and real GDP.
C)  increases the price level and decreases real GDP.
D)  decreases the price level and increases real GDP.E) A) and C)
F) None of the above

Question 17

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)  liquidity preference.
B)  liquidity trap.
C)  open-market trap.
D)  interest-rate contraction.E) A) and B)
F) C) and D)

Question 18

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Accepted Answer

A)  increase government spending.
B)  increase the money supply.
C)  decrease government spending.
D)  decrease the money supply.E) C) and D)
F) A) and C)

Question 19

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect, exchange-rate effect, interest-rate effect
B)  exchange-rate effect, interest-rate effect, wealth effect
C)  interest-rate effect, wealth effect, exchange-rate effect
D)  interest-rate effect, exchange-rate effect, wealth effectE) A) and B)
F) A) and C)

Question 20

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)  increase, so the money supply increases.
B)  increase, so the money supply decreases.
C)  decrease, so the money supply increases.
D)  decrease, so the money supply decreases.E) A) and B)
F) None of the above

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

If the stock market crashes, then

Correct AnswerverifiedShow Answer

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Correct AnswerverifiedShow Answer

Figure 34-3. -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct AnswerverifiedShow Answer

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

When the Fed sells government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct AnswerverifiedShow Answer

An increase in the money supply will

Correct AnswerverifiedShow Answer

Some economists argue that

Correct AnswerverifiedShow Answer

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

Correct Answerverifieddemand, ou...View AnswerShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/(1-MPC) = 1/(1-.8) =...View AnswerShow Answer

In the short run, open-market sales

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Correct AnswerverifiedShow Answer

During periods of expansion, automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Correct AnswerverifiedShow Answer

During recessions, automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct AnswerverifiedShow Answer

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Figure 34-3. -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The goal of stabilization policy is to stabilize aggregate ___. As a result, stabilization policy will also stabilize _ and ___.

Correct Answer
verified
demand, ou...
View Answer

Correct Answer
verified
The multiplier is 1/(1-MPC) = 1/(1-.8) =...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified