Question 1

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do?

Accepted Answer

A)   buy bonds to raise the interest rat
B)   buy bonds to lower the interest rate
C)   sell bonds to raise the interest rate
D)   sell bonds to raise the interest rate.E) B) and C)
F) C) and D)

Question 2

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)   Increases in the money supply shift aggregate demand to the right.
B)   In the long run, increases in the money supply increase prices, but not output.
C)   Recessions are associated with decreases in consumption, investment, and employment.
D)   Government should use fiscal policy to try to stabilize the economy.E) B) and C)
F) All of the above

Question 3

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 4

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

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) A) and B)
F) All of the above

Question 5

Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand

Accepted Answer

A)   shifts rightward by $62.5 billion.
B)   shifts rightward by $50.0 billion.
C)   shifts rightward by $32.5 billion.
D)   None of the above is correct.E) A) and D)
F) A) and B)

Question 6

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 7

Changes in the interest rate bring the money market into equilibrium according to

Accepted Answer

A)   both liquidity preference theory and classical theory.
B)   neither liquidity preference theory nor classical theory.
C)   liquidity preference theory, but not classical theory.
D)   classical theory, but not liquidity preference theory.E) B) and C)
F) B) and D)

Question 8

Figure 16-6. 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 to r2, then A)  there would be no crowding out. B)  the full multiplier effect of the increase in government purchases would be realized. C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. D)  All of the above are correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)   there would be no crowding out.
B)   the full multiplier effect of the increase in government purchases would be realized.
C)   the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 9

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 10

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)   the MPC is large and if the tax cut is permanent.
B)   the MPC is large and if the tax cut is temporary.
C)   the MPC is small and if the tax cut is permanent.
D)   the MPC is small and if the tax cut is temporary.E) None of the above
F) All of the above

Question 11

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 12

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) B) and C)
F) A) and D)

Question 13

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 14

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A)   Interest rates rise as the Fed reduces the quantity of money demanded.
B)   Interest rates fall as the Fed reduces the supply of money.
C)   People will want to hold less money as the cost of holding it falls.
D)   People will want to hold more money as the cost of holding it falls.E) A) and D)
F) None of the above

Question 15

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)   interest rate
B)   money supply
C)   quantity of output
D)   price levelE) B) and C)
F) A) and D)

Question 16

According to the theory of liquidity preference, if output increases

Accepted Answer

A)   people want to hold more money. This response is shown as a movement along the money demand curve.
B)   people want to hold more money. This response is shown as a shift of the money demand curve.
C)   people want to hold less money. This response is shown as a movement along the money demand curve.
D)   people want to hold less money. This response is shown as a shift of the money demand curve.E) C) and D)
F) B) and D)

Question 17

People will want to hold less money if the price level

Accepted Answer

A)   increases or if the interest rate increases.
B)   decreases or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) None of the above
F) A) and D)

Question 18

According to classical macroeconomic theory,

Accepted Answer

A)   output is determined by the supplies of capital and labor and the available production technology.
B)   for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds.
C)   given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 19

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 20

The term crowding-out effect refers to

Accepted Answer

A)   the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.
B)   the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.
C)   the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
D)   the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.E) None of the above
F) A) and C)

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

If the MPC is 4/5, the multiplier is 5/4.

Correct Answer
verified

The theory of liquidity preference was developed by Irving Fisher.

Correct Answer
verified

Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand

Correct Answer
verified

People will want to hold less money if the price level

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

Changes in the interest rate bring the money market into equilibrium according to

Correct Answer
verified

According to classical macroeconomic theory,

Correct Answer
verified

The term crowding-out effect refers to

Correct Answer
verified

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct Answer
verified

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct Answer
verified

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Correct Answer
verified

According to the theory of liquidity preference, if output increases

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements generates the greatest amount of disagreement among economists?

Correct Answer
verified

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct Answer
verified

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Correct Answer
verified

Correct Answer
verified

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do?

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct Answer
verified

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

If the MPC is 4/5, the multiplier is 5/4.

Correct AnswerverifiedShow Answer

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand

Correct AnswerverifiedShow Answer

People will want to hold less money if the price level

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

Changes in the interest rate bring the money market into equilibrium according to

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

The term crowding-out effect refers to

Correct AnswerverifiedShow Answer

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if output increases

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements generates the greatest amount of disagreement among economists?

Correct AnswerverifiedShow Answer

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do?

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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 nominal interest rate on currency is...
View Answer

Correct Answer
verified