Question 1

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)   When interest rates fall, In-and-Out Convenience Stores decides to build some new stores.
B)   The exchange rate falls, so French restaurants in Paris buy more Kansas beef.
C)   Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen.
D)   With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.E) None of the above
F) All of the above

Question 2

According to the theory of liquidity preference, a decrease in the price level causes the

Accepted Answer

A)   interest rate and investment to rise.
B)   interest rate and investment to fall.
C)   interest rate to rise and investment to fall.
D)   interest rate to fall and investment to rise.E) All of the above
F) C) and D)

Question 3

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 4

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
 1 to MD2? A)  a decrease in the price level B)  a decrease in the cost of borrowing C)  an increase in the price level D)  an increase in the cost of borrowing " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the cost of borrowing
C)   an increase in the price level
D)   an increase in the cost of borrowingE) B) and D)
F) B) and C)

Question 5

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)   neither the level of output nor the level of prices.
B)   the level of output, but not in the level of prices.
C)   the level of prices, but not in the level of output.
D)   the level of output and in the level of prices.E) A) and D)
F) B) and C)

Question 6

A decrease in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so decreases investment spending decreases.
C)   decreases the interest rate and so investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) A) and D)
F) A) and C)

Question 7

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   1/MPC.
B)   1/(1 - MP
C)  .
C)   MPC/(1 - MP
C)  .
D)   (1 - MP
C)  /MPC.E) All of the above
F) B) and C)

Question 8

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   MPC.
B)   1 - MPC.
C)   1/MPC.
D)   1/(1 - MP
C)  .E) B) and C)
F) A) and C)

Question 9

Figure 16-2. 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 16-2. 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 moneyE) C) and D)
F) A) and B)

Question 10

According to liquidity preference theory, an increase in the price level causes the interest rate to

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) All of the above
F) None of the above

Question 11

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 12

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 C)
F) A) and D)

Question 13

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)   the smaller the MPC and the stronger the influence of income on money demand.
B)   the smaller the MPC and the weaker the influence of income on money demand.
C)   the larger the MPC and the stronger the influence of income on money demand.
D)   the larger the MPC and the weaker the influence of income on money demand.E) A) and D)
F) A) and C)

Question 14

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 15

When the Fed decreases the money supply, we expect

Accepted Answer

A)   interest rates and stock prices to rise.
B)   interest rates and stock prices to fall.
C)   interest rates to rise and stock prices to fall.
D)   interest rates to fall and stock prices to rise.E) B) and C)
F) A) and D)

Question 16

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.E) A) and C)
F) None of the above

Question 17

Figure 16-1
 
-Refer to Figure 16-1. Which of the following is correct?

Accepted Answer

A)   If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall.
B)   If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise.
C)   Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium.
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 18

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither crowding out nor the investment acceleratorE) A) and C)
F) None of the above

Question 19

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Accepted Answer

A)   the accelerator effect.
B)   the multiplier effect.
C)   the chain effect.
D)   the bandwagon effect.E) None of the above
F) B) and D)

Question 20

If the Federal Reserve decided to lower interest rates, it could

Accepted Answer

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

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If the Federal Reserve decided to lower interest rates, it could

Correct Answer
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Correct Answer
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A decrease in government spending

Correct Answer
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In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct Answer
verified

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct Answer
verified

According to the theory of liquidity preference, a decrease in the price level causes the

Correct Answer
verified

When the Fed decreases the money supply, we expect

Correct Answer
verified

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct Answer
verified

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
verified

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct Answer
verified

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct Answer
verified

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct Answer
verified

The multiplier for changes in government spending is calculated as

Correct Answer
verified

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
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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 Answer
verified

Figure 16-1 -Refer to Figure 16-1. Which of the following is correct?

Correct Answer
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The multiplier for changes in government spending is calculated as

Correct Answer
verified

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

Correct Answer
verified

Other things equal, the higher the price level, the higher is the real wealth of households.

Correct Answer
verified

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If the Federal Reserve decided to lower interest rates, it could

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in government spending

Correct AnswerverifiedShow Answer

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct AnswerverifiedShow Answer

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, a decrease in the price level causes the

Correct AnswerverifiedShow Answer

When the Fed decreases the money supply, we expect

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct AnswerverifiedShow Answer

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct AnswerverifiedShow Answer

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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

Figure 16-1 -Refer to Figure 16-1. Which of the following is correct?

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things equal, the higher the price level, the higher is the real wealth of households.

Correct AnswerverifiedShow Answer

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Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
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