Question 1

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)   the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)   the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)   the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)   the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) A) and C)
F) None of the above

Question 2

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)   changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) B) and D)
F) A) and B)

Question 3

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)   A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect.
B)   A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.
C)   An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect.
D)   An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.E) A) and D)
F) All of the above

Question 4

Paul Samuelson, a famous economist, said that

Accepted Answer

A)   "the bond market has predicted zero out of the past nine recessions."
B)   "the stock market has predicted zero out of the past nine recessions."
C)   "the bond market has predicted nine out of the past five recessions."
D)   "the stock market has predicted nine out of the past five recessions."E) All of the above
F) A) and C)

Question 5

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)   president George W. Bush
B)   president John F. Kennedy
C)   economist John Maynard Keynes
D)   former chairman of the Federal Reserve System William McChesney MartinE) A) and B)
F) A) and C)

Question 6

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Accepted Answer

A)   the equilibrium interest rate increases.
B)   the aggregate-demand curve shifts to the right.
C)   the quantity of goods and services demanded is unchanged for a given price level.
D)   the short-run aggregate-supply curve shifts to the left.E) B) and C)
F) All of the above

Question 7

An decrease in taxes shifts aggregate demand

Accepted Answer

A)   to the right. The larger the multiplier is, the farther it shifts.
B)   to the right. The larger the multiplier is, the less it shifts.
C)   to the left. The larger the multiplier is, the farther it shifts.
D)   to the left. The larger the multiplier is, the less it shifts.E) B) and C)
F) A) and D)

Question 8

If the Fed conducts open-market sales, which of the following quantities increases) ?

Accepted Answer

A)   interest rates, prices, and investment spending
B)   interest rates and prices, but not investment spending
C)   interest rates and investment, but not prices
D)   interest rates, but not investment or pricesE) B) and D)
F) A) and B)

Question 9

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)   The actual MPC was larger than the MPC the aide used to compute the multiplier.
B)   The aide thought the tax cut would be permanent, but the actual tax cut was temporary.
C)   The increase in income shifted money demand less than the aide had anticipated.
D)   The increase in income resulted in investment rising more than the aide had anticipated.E) None of the above
F) All of the above

Question 10

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by $180 billion.
B)   left by $500 billion.
C)   right by $180 billion.
D)   right by $400 billion.E) None of the above
F) A) and B)

Question 11

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Accepted Answer

A)   $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
B)   $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand.
C)   $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
D)   $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.E) B) and D)
F) C) and D)

Question 12

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)   if the money demand curve shifted right.
B)   if the Federal Reserve chose to increase the money supply.
C)   if the interest rate increased.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 13

As the MPC gets close to 1, the value of the multiplier approaches

Accepted Answer

A)   0.
B)   1.
C)   infinity.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 14

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)   demand rightward by more than $100 billion.
B)   demand rightward by less than $100 billion.
C)   supply leftward by more than $100 billion.
D)   supply leftward by less than $100 billion.E) A) and B)
F) A) and C)

Question 15

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 16

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

Accepted Answer

increases,...

Question 17

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 18

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Accepted Answer

increases,...

Question 19

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)   increases, interest rates increase, and investment decreases.
B)   increases, interest rates decrease, and investment increases.
C)   decreases, interest rates increase, and investment increases.
D)   decreases, interest rates decrease, and investment decreases.E) None of the above
F) All of the above

Question 20

Tax increases

Accepted Answer

A)   and increases in government expenditures shift aggregate demand right.
B)   and increases in government expenditures shift aggregate demand left.
C)   shift aggregate demand right while increases in government expenditures shift aggregate demand left.
D)   shift aggregate demand left while increases in government expenditures shift aggregate demand right.E) A) and C)
F) A) and B)

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

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

Correct Answer
verified
increases,...
View Answer

The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.

Correct Answer
verified
increases,...
View Answer

According to liquidity preference theory, the money-supply curve would shift rightward

Correct Answer
verified

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
verified

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Correct Answer
verified

As the MPC gets close to 1, the value of the multiplier approaches

Correct Answer
verified

According to liquidity preference theory, if there were a surplus of money, then

Correct Answer
verified

An decrease in taxes shifts aggregate demand

Correct Answer
verified

Paul Samuelson, a famous economist, said that

Correct Answer
verified

Tax increases

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Correct Answer
verified

If the Fed conducts open-market sales, which of the following quantities increases) ?

Correct Answer
verified

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct Answer
verified

The most important reason for the slope of the aggregate-demand curve is that as the price level

Correct Answer
verified

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct Answer
verified

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Correct Answer
verified

Correct Answer
verified

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

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

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

Correct Answerverifiedincreases,...View AnswerShow Answer

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Correct Answerverifiedincreases,...View AnswerShow Answer

According to liquidity preference theory, the money-supply curve would shift rightward

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

Correct AnswerverifiedShow Answer

As the MPC gets close to 1, the value of the multiplier approaches

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if there were a surplus of money, then

Correct AnswerverifiedShow Answer

An decrease in taxes shifts aggregate demand

Correct AnswerverifiedShow Answer

Paul Samuelson, a famous economist, said that

Correct AnswerverifiedShow Answer

Tax increases

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales, which of the following quantities increases) ?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

The most important reason for the slope of the aggregate-demand curve is that as the price level

Correct AnswerverifiedShow Answer

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct AnswerverifiedShow Answer

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

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

Correct Answer
verified
increases,...
View Answer

The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.

Correct Answer
verified
increases,...
View Answer

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