Question 1

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

A)   sell interest-bearing assets, causing the interest rate to decrease.
B)   sell interest-bearing assets, causing the interest rate to increase.
C)   buy interest-bearing assets, causing the interest rate to decrease.
D)   buy interest-bearing assets, causing the interest rate to increase.E) A) and D)
F) All of the above

Question 2

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 3

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu...

Question 4

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 5

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.E) A) and D)
F) C) and D)

Question 6

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

output, pr...

Question 7

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

Question 8

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)   increase taxes
B)   increase government expenditures
C)   increase the money supply
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 9

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 10

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)   shift aggregate demand right by a larger amount than the increase in government expenditures.
B)   shift aggregate demand right by the same amount as the increase in government expenditures.
C)   shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)   Any of the above outcomes are possible.E) C) and D)
F) None of the above

Question 11

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into an)

Accepted Answer

A)   $570 increase in aggregate demand when the crowding-out effect is taken into account.
B)   $800 increase in aggregate demand when the crowding-out effect is taken into account.
C)   $1,400 increase in aggregate demand in the absence of the crowding-out effect.
D)   $800 increase in aggregate demand in the absence of the crowding-out effect.E) A) and D)
F) A) and C)

Question 12

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)   increase consumption spending.
B)   increase investment spending.
C)   increase both consumption and investment spending.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 13

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither crowding out nor the investment acceleratorE) A) and C)
F) None of the above

Question 14

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) A) and B)
F) A) and C)

Question 15

If there is excess demand for money, then people will

Accepted Answer

A)   deposit more money into interest-bearing accounts, and the interest rate will fall.
B)   deposit more money into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) None of the above
F) A) and C)

Question 16

According to the theory of liquidity preference,

Accepted Answer

A)   if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)   if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)   the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 17

The interest rate falls if

Accepted Answer

A)   either money demand or money supply shifts right.
B)   money demand shifts right or money supply shifts left.
C)   either money demand or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) C) and D)
F) A) and D)

Question 18

An increase in government spending initially and primarily shifts

Accepted Answer

A)   aggregate demand to the right.
B)   aggregate demand to the left.
C)   aggregate supply to the right.
D)   neither aggregate demand nor aggregate supply in either direction.E) A) and C)
F) None of the above

Question 19

The Fed can influence the money supply by

Accepted Answer

A)   changing how much it lends to banks.
B)   changing the interest rate it pays banks on the reserves they are holding.
C)   using open-market operations.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 20

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Accepted Answer

A) True 
 B)False

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

The Fed is concerned about stock market booms because the booms

Correct Answer
verified

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct Answer
verified

Liquidity preference refers directly to Keynes' theory concerning

Correct Answer
verified

The Fed can influence the money supply by

Correct Answer
verified

The interest rate falls if

Correct Answer
verified

If it were not for the automatic stabilizers in the U.S. economy,

Correct Answer
verified

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct Answer
verified

An increase in government spending initially and primarily shifts

Correct Answer
verified

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
verified
output, pr...
View Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct Answer
verified
If the interest rate is above equilibriu...
View Answer

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

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

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct Answer
verified

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

Correct Answer
verified

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct Answer
verified

According to the theory of liquidity preference,

Correct Answer
verified

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Correct Answer
verified

If there is excess demand for money, then people will

Correct Answer
verified

Correct Answer
verified

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 Answer
verified
interest-r...
View Answer

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

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

Liquidity preference refers directly to Keynes' theory concerning

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

If it were not for the automatic stabilizers in the U.S. economy,

Correct AnswerverifiedShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct AnswerverifiedShow Answer

An increase in government spending initially and primarily shifts

Correct AnswerverifiedShow Answer

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Correct Answerverifiedoutput, pr...View AnswerShow Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct AnswerverifiedIf the interest rate is above equilibriu...View AnswerShow Answer

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

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

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Correct AnswerverifiedShow Answer

If there is excess demand for money, then people will

Correct AnswerverifiedShow Answer

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

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Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
verified
output, pr...
View Answer

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verified
If the interest rate is above equilibriu...
View Answer

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interest-r...
View Answer