Question 1

Figure 34-5 1 to AD3. B) shift aggregate demand from AD1 to AD2. C) cause movement from point C to point D along AD1. D) have no effect on aggregate demand." class="answers-bank-image d-inline" rel="preload" > ​
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-Refer to Figure 34-5. An increase in taxes will

Accepted Answer

A)  shift aggregate demand from AD1 to AD3.
B)  shift aggregate demand from AD1 to AD2.
C)  cause movement from point C to point D along AD1.
D)  have no effect on aggregate demand.E) B) and C)
F) B) and D)

Question 2

If the interest rate is below the Fed's target, the Fed should

Accepted Answer

A)  sell bonds to decrease the money supply.
B)  sell bonds to increase the money supply.
C)  buy bonds to decrease the money supply.
D)  buy bonds to increase the money supply.E) A) and B)
F) A) and D)

Question 3

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A)  has no effect on aggregate demand.
B)  has more of an effect on aggregate demand than if households view it as permanent.
C)  has the same effect as when households view the cut as permanent.
D)  has less of an effect on aggregate demand than if households view it as permanent.E) C) and D)
F) A) and B)

Question 4

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a _____ effect...

Question 5

Liquidity preference theory is most relevant to the

Accepted Answer

A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) A) and D)
F) C) and D)

Question 6

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Accepted Answer

A) True 
 B)False

Question 7

The Federal Open Market Committee is ​

Accepted Answer

A)  ​the group at the Federal Reserve that sets monetary policy.
B)  ​in charge of tax collection.
C)  ​the group that sets the amount of government spending.
D)  ​the group that reviews income assistance programs.E) All of the above
F) B) and D)

Question 8

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run.
B)  only in the long run.
C)  in both the short and long run.
D)  in neither the short nor the long run.E) B) and C)
F) B) and D)

Question 9

When taxes increase, interest rates

Accepted Answer

A)  decrease, making the change in aggregate demand larger.
B)  decrease, making the change in aggregate demand smaller.
C)  increase, making the change in aggregate demand larger.
D)  increase, making the change in aggregate demand smaller.E) A) and B)
F) None of the above

Question 10

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

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

Question 11

A goal of monetary policy and fiscal policy is to

Accepted Answer

A)  offset the shifts in aggregate demand and thereby eliminate unemployment.
B)  offset shifts in aggregate demand and thereby stabilize the economy.
C)  enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)  enhance the shifts in aggregate demand and thereby increase economic growth.E) None of the above
F) A) and B)

Question 12

Figure 34-4 2. If the current interest rate is r2, then A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. B) people will respond by selling interest-bearing bonds. C) bond issuers and banks will respond by lowering the interest rates they offer. D) in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market." class="answers-bank-image d-inline" rel="preload" > ​
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-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)  people will respond by selling interest-bearing bonds.
C)  bond issuers and banks will respond by lowering the interest rates they offer.
D)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.E) A) and D)
F) All of the above

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

Question 14

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)  Lower interest ratesE) A) and C)
F) All of the above

Question 15

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause a(n) _____ in interest...

Question 16

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases,...

Question 17

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run.
B)  the long run but not in the short run.
C)  both the short and long run.
D)  neither the short nor long run.E) A) and B)
F) A) and C)

Question 18

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m...

Question 19

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 20

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  Decrease the money supply
B)  Increase government expenditures
C)  Increase taxes
D)  Increase interest ratesE) A) and D)
F) A) and C)

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

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

A goal of monetary policy and fiscal policy is to

Correct AnswerverifiedShow Answer

If households view a tax cut as temporary, then the tax cut

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

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

When taxes increase, interest rates

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Shifts in aggregate demand affect the price level in

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Fiscal policy affects the economy

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A decrease in taxes ____ aggregate demand through larger _____ by households.

Correct Answerverifiedincreases,...View AnswerShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S. m...View AnswerShow Answer

The Federal Open Market Committee is ​

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Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Correct AnswerverifiedShow Answer

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

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Figure 34-4 ​ ​ -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

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Figure 34-5 ​ ​ ​ -Refer to Figure 34-5. An increase in taxes will

Correct AnswerverifiedShow Answer

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed should

Correct AnswerverifiedShow Answer

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

Which of the following is an example of crowding out?

Correct AnswerverifiedShow Answer

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A decrease in taxes aggregate demand through larger _ by households.

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increases,...
View Answer

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The Federal Reserve Bank conducts U.S. m...
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The Federal Open Market Committee is

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Open-market purchases cause a(n) _ in interest rates and a(n) _ in real GDP in the short run.

Correct Answer
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According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.

Correct Answer
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Figure 34-4 -Refer to Figure 34-4. Suppose the money-demand curve is currently MD₂. If the current interest rate is r₂, then

Correct Answer
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Figure 34-5 -Refer to Figure 34-5. An increase in taxes will

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