Question 1

The multiplier effect

Accepted Answer

A)   and the crowding-out effect both amplify the effects of an increase in government expenditures.
B)   and the crowding-out effect both diminish the effects of an increase in government expenditures.
C)   diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects.
D)   amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.E) B) and D)
F) B) and C)

Question 2

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

decrease t...

Question 3

The Kennedy tax cut of 1964 was

Accepted Answer

A)   successful in stimulating the economy.
B)   designed to shift the aggregate demand curve to the right.
C)   designed to shift the aggregate supply curve to the right.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 4

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

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

Question 5

If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.

Accepted Answer

A) True 
 B)False

Question 6

Figure 34-7 
-Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

A)   an increase in the money supply.
B)   a decrease in government purchases.
C)   an increase in taxes.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 7

Changes in the interest rate help explain

Accepted Answer

A)   only the slope of, not shifts of aggregate demand.
B)   only shifts of, not the slope of aggregate demand.
C)   both the slope of and shifts of aggregate demand.
D)   neither the slope nor shifts of aggregate demand.E) B) and C)
F) C) and D)

Question 8

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) A) and C)
F) C) and D)

Question 9

According to John Maynard Keynes,

Accepted Answer

A)   the demand for money in a country is determined entirely by that nation's central bank.
B)   the supply of money in a country is determined by the overall wealth of the citizens of that country.
C)   the interest rate adjusts to balance the supply of, and demand for, money.
D)   the interest rate adjusts to balance the supply of, and demand for, goods and services.E) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

demand, ou...

Question 11

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)   the effects of changes in money demand and supply on interest rates.
B)   the effects of changes in money demand and supply on exchange rates.
C)   the effects of wealth on expenditures.
D)   the difference between temporary and permanent changes in income.E) All of the above
F) B) and C)

Question 12

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

Question 13

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)   right by more than $100 billion.
B)   right by $100 billion.
C)   left by more than $100 billion.
D)   left by $100 billion.E) C) and D)
F) A) and B)

Question 15

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

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

Question 16

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 on...

Question 17

The multiplier is computed as MPC / 1 - MPC).

Accepted Answer

A) True 
 B)False

Question 18

"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)   rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.
C)   changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate.
D)   our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.E) A) and C)
F) A) and B)

Question 19

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

Accepted Answer

A)   increase the money supply, which will reduce interest rates.
B)   decrease the money supply, which will reduce interest rates.
C)   increase the money supply, which will increase interest rates.
D)   decrease the money supply, which will increase interest rates.E) B) and D)
F) B) and C)

Question 20

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. The marginal propensity to consume for this economy is

Accepted Answer

A)   0.64.
B)   0.83.
C)   0.56.
D)   0.840.E) A) and B)
F) A) and C)

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

Changes in the interest rate help explain

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

Correct Answerverifieddemand, ou...View AnswerShow Answer

The Kennedy tax cut of 1964 was

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Liquidity preference refers directly to Keynes' theory concerning

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Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Correct AnswerverifiedShow Answer

Which of the following policy actions shifts the aggregate-demand curve?

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The multiplier is computed as MPC / 1 - MPC).

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If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.

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The multiplier effect

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

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Which of the following shifts aggregate demand to the right?

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

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Figure 34-7 -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Correct AnswerverifiedShow Answer

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

According to John Maynard Keynes,

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Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifieddecrease t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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. The marginal propensity to consume for this economy is

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

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Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct AnswerverifiedShow Answer

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

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demand, ou...
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decrease t...
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