Question 1

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 2

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 3

Figure 34-14 
-Refer to Figure 34-14. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Accepted Answer

Question 4

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/1-MPC) = 1/1-.8) = 1...

Question 5

If the Federal Reserve increases the money supply, then initially people want to

Accepted Answer

A)   sell bonds so the interest rate rises.
B)   sell bonds so the interest rate falls.
C)   buy bonds so the interest rate rises.
D)   buy bonds so the interest rate falls.E) None of the above
F) B) and D)

Question 6

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)   the tax increase reduces consumption; the change in the interest rate reduces residential construction.
B)   the tax increase reduces consumption; the change in the interest rate raises residential construction.
C)   the tax increase raises consumption; the change in the interest rate reduces residential construction.
D)   the tax increase raises consumption; the change in the interest rate reduces residential constructionE) B) and C)
F) A) and B)

Question 7

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 8

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Accepted Answer

A)   aggregate demand falls by 2 x $40 billion.
B)   aggregate demand falls by 11/2 x $40 billion.
C)   aggregate demand falls by 11/9 x $40 billion.
D)   aggregate demand falls by 9/11 x $40 billion.E) A) and C)
F) None of the above

Question 9

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Accepted Answer

A)   purchasing government bonds. This action will reduce investment and shift aggregate demand to the right.
B)   purchasing government bonds. This action will increase investment and shift aggregate demand to the right.
C)   selling government bonds. This action will reduce investment and shift aggregate demand to the left.
D)   selling government bonds. This action will increase investment and shift aggregate demand to the left.E) All of the above
F) A) and D)

Question 10

Figure 34-8 
-Refer to Figure 34-8. An increase in government purchases will

Accepted Answer

A)   shift aggregate demand from AD1 to AD2.
B)   shift aggregate demand from AD1 to AD3.
C)   cause movement from point A to point B along AD1.
D)   have no effect on aggregate demand.E) All of the above
F) A) and D)

Question 11

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 12

An increase in the MPC

Accepted Answer

A)   increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
B)   increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.
C)   decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
D)   decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.E) A) and D)
F) All of the above

Question 13

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate, but not an increase in the price level
C)   an increase in the price level, but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) None of the above
F) C) and D)

Question 16

Unemployment insurance benefits are an example of .

Accepted Answer

automatic ...

Question 17

Which among the following assets is the most liquid?

Accepted Answer

A)   corporate bonds
B)   fine art
C)   deposits that can be withdrawn using ATMs
D)   shares of stockE) All of the above
F) A) and B)

Question 18

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) None of the above

Question 19

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 D)
F) A) and C)

Question 20

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Accepted Answer

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

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

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct AnswerverifiedShow Answer

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Correct AnswerverifiedShow Answer

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

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

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

Figure 34-14 -Refer to Figure 34-14. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Correct AnswerverifiedShow Answer

Unemployment insurance benefits are an example of .

Correct Answerverifiedautomatic ...View AnswerShow 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

If the Federal Reserve increases the money supply, then initially people want to

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

An increase in the MPC

Correct AnswerverifiedShow Answer

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Correct AnswerverifiedShow Answer

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Correct AnswerverifiedShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/1-MPC) = 1/1-.8) = 1...View AnswerShow Answer

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Correct AnswerverifiedShow 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

Figure 34-14 -Refer to Figure 34-14. Households' desired money holdings are given by MD₁. If the current rate of interest is r₃, then there is excess ___. Households will _ interest-earning assets, which causes the interest rate to ___.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
automatic ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The multiplier is 1/1-MPC) = 1/1-.8) = 1...
View Answer

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified