Question 1

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase, ...

Question 2

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)   increase taxes or increase the money supply
B)   increase taxes or decrease the money supply
C)   decrease taxes or increase the money supply
D)   decrease taxes or decrease the money supplyE) None of the above
F) All of the above

Question 3

Other things equal, in the short run a lower price level leads households to

Accepted Answer

A)   increase consumption and firms to buy more capital goods.
B)   increase consumption and firms to buy fewer capital goods.
C)   decrease consumption and firms to buy more capital goods.
D)   decrease consumption and firms to buy fewer capital goods.E) B) and D)
F) A) and D)

Question 4

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/1 ...

Question 5

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 6

According to liquidity preference theory, an increase in the price level shifts the

Accepted Answer

A)   money demand curve rightward, so the interest rate increases.
B)   money demand curve rightward, so the interest rate decreases.
C)   money demand curve leftward, so the interest rate decreases.
D)   money demand curve leftward, so the interest rate increases.E) A) and C)
F) A) and B)

Question 7

Shifts in aggregate demand affect the price level in

Accepted Answer

A)   the short run but not in the long run.
B)   the long run but not in the short run.
C)   both the short and long run.
D)   neither the short nor long run.E) B) and C)
F) None of the above

Question 8

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

Question 9

People choose to hold a larger quantity of money if

Accepted Answer

A)   the interest rate rises, which causes the opportunity cost of holding money to rise.
B)   the interest rate falls, which causes the opportunity cost of holding money to rise.
C)   the interest rate rises, which causes the opportunity cost of holding money to fall.
D)   the interest rate falls, which causes the opportunity cost of holding money to fall.E) A) and C)
F) A) and B)

Question 10

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 11

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) A) and D)
F) A) and B)

Question 12

An increase in the interest rate could have been caused by

Accepted Answer

A)   a fall in the price level causing the money-demand curve to shift leftward.
B)   a fall in the price level causing the money-demand curve to shift rightward.
C)   a rise in the price level causing the money-demand curve to shift leftward.
D)   a rise in the price level causing the money-demand curve to shift rightward.E) A) and B)
F) B) and C)

Question 13

An increase in the money supply will

Accepted Answer

A)   increase interest rates, decreasing investment and aggregate demand.
B)   reduce interest rates, increasing investment and aggregate demand.
C)   reduce interest rates, decreasing investment and increasing aggregate demand.
D)   increase interest rates, increasing investment and aggregate demand.E) B) and D)
F) C) and D)

Question 14

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

The Federal Funds rate is the interest rate

Accepted Answer

A)   banks charge each other for short-term loans.
B)   the Fed charges depository institutions for short-term loans.
C)   the Fed pays on deposits.
D)   interest rate on 3 month Treasury bills.E) A) and B)
F) C) and D)

Question 16

Automatic stabilizers

Accepted Answer

A)   increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)   are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)   are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 17

When the Fed buys government bonds, the reserves of the banking system

Accepted Answer

A)   increase, so the money supply increases.
B)   increase, so the money supply decreases.
C)   decrease, so the money supply increases.
D)   decrease, so the money supply decreases.E) A) and D)
F) A) and C)

Question 18

Keynes argued that

Accepted Answer

A)   irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.
B)   irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply.
C)   changes in business and consumer expectations generally stabilize the economy.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 19

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) B) and D)
F) None of the above

Question 20

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

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

Automatic stabilizers

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Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct AnswerverifiedAn MPC of .9 means the multiplier = 1/1 ...View AnswerShow Answer

Keynes argued that

Correct AnswerverifiedShow Answer

People choose to hold a larger quantity of money if

Correct AnswerverifiedShow Answer

To decrease the interest rate the Federal Reserve could

Correct AnswerverifiedShow Answer

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct AnswerverifiedShow Answer

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct AnswerverifiedShow Answer

An increase in the interest rate could have been caused by

Correct AnswerverifiedShow Answer

When the Fed buys government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

Other things equal, in the short run a lower price level leads households to

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in the price level shifts the

Correct AnswerverifiedShow Answer

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Correct Answerverifiedincrease, ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Correct AnswerverifiedShow Answer

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow Answer

An increase in the money supply will

Correct AnswerverifiedShow Answer

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An MPC of .9 means the multiplier = 1/1 ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

Correct Answer
verified
increase, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The wealth effect and the exchange-rate ...
View Answer

Correct Answer
verified