Question 1

Which of the following statements is correct for the long run?

Accepted Answer

A)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) None of the above
F) B) and D)

Question 2

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)   The price level rises, causing the interest rate to fall.
B)   The price level falls, causing the interest rate to fall.
C)   The money supply increases, causing the interest rate to fall.
D)   The money supply decreases, causing the interest rate to fall.E) B) and C)
F) A) and B)

Question 3

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)   buy bonds to increase bank reserves.
B)   buy bonds to decrease bank reserves.
C)   sell bonds to increase bank reserves.
D)   sell bonds to decrease bank reserves.E) B) and D)
F) None of the above

Question 6

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) None of the above
F) All of the above

Question 7

An increase in government purchases is likely to

Accepted Answer

A)   decrease interest rates.
B)   reduce money demand.
C)   crowd out investment spending by business firms.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 8

According to classical macroeconomic theory,

Accepted Answer

A)   the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)   for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)   output is determined by the supplies of capital and labor and the available production technology.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 9

During recessions, taxes tend to

Accepted Answer

A)   rise and thereby increase aggregate demand.
B)   rise and thereby decrease aggregate demand.
C)   fall and thereby increase aggregate demand.
D)   fall and thereby decrease aggregate demand.E) C) and D)
F) None of the above

Question 10

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Accepted Answer

A)   increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending.
B)   increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
C)   decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending.
D)   decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.E) None of the above
F) A) and C)

Question 11

Other things the same, as the price level rises,

Accepted Answer

A)   the interest rate rises causing aggregate demand to shift.
B)   the interest rate rises causing a movement along a given aggregate-demand curve.
C)   the interest rate falls causing aggregate demand to shift.
D)   the interest rate falls causing a movement along a given aggregate-demand curve.E) All of the above
F) A) and C)

Question 12

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 13

When households find themselves holding too much money, they respond by

Accepted Answer

A)   purchasing interest-earning financial assets and interest rates fall.
B)   purchasing interest-earning financial assets and interest rates rise.
C)   holding the extra money and interest rates rise.
D)   selling interest-earning financial assets, which eliminates the excess supply of money.E) All of the above
F) C) and D)

Question 14

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)   shifts rightward by $100 billion.
B)   shifts rightward by $51 billion.
C)   shifts rightward by $170 billion.
D)   shifts rightward by $72.8 billion.E) A) and C)
F) C) and D)

Question 15

People will want to hold more money if the price level

Accepted Answer

A)   or if the interest rate increases.
B)   or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) A) and B)
F) A) and D)

Question 16

To decrease the interest rate the Federal Reserve could

Accepted Answer

A)   buy bonds. The fall in the interest rate would increase investment spending.
B)   buy bonds. The fall in the interest rate would decrease investment spending.
C)   sell bonds. The fall in the interest rate would increase investment spending
D)   sell bonds. The fall in the interest rate would decrease investment spending.E) A) and D)
F) A) and C)

Question 17

When the Fed lowers the growth rate of the money supply, it must take into account

Accepted Answer

A)   only the short-run effect on production.
B)   only the short-run effects on inflation and production.
C)   only the long-run effect on inflation.
D)   the long-run effect on inflation as well as the short-run effect on production.E) A) and B)
F) All of the above

Question 18

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) C) and D)
F) B) and D)

Question 19

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r...

Question 20

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)   the interest rate falls and aggregate supply is relatively flat
B)   the interest rate falls and aggregate supply is relatively steep
C)   the interest rate rises and aggregate supply is relatively flat
D)   the interest rate rises and aggregate supply is relatively steepE) B) and C)
F) None of the above

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

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Correct AnswerverifiedShow Answer

An increase in government purchases is likely to

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

When the Fed lowers the growth rate of the money supply, it must take into account

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answerverifiedinterest-r...View AnswerShow Answer

Other things the same, as the price level rises,

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the long run?

Correct AnswerverifiedShow Answer

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct AnswerverifiedShow Answer

During recessions, taxes tend to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Correct AnswerverifiedShow Answer

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

To decrease the interest rate the Federal Reserve could

Correct AnswerverifiedShow Answer

When households find themselves holding too much money, they respond by

Correct AnswerverifiedShow Answer

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
interest-r...
View 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