Question 1

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int...

Question 2

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

Question 3

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)   An increase in government expenditures decreases the interest rate and so increases investment spending.
B)   An increase in government expenditures increases the interest rate and so reduces investment spending.
C)   A decrease in government expenditures increases the interest rate and so increases investment spending.
D)   A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) All of the above
F) A) and B)

Question 4

Which of the following statements is correct for the short 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 responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; 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) B) and C)
F) C) and D)

Question 5

In the long run, changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) C) and D)
F) None of the above

Question 6

In the long run, fiscal policy primarily affects

Accepted Answer

A)   aggregate demand. In the short run, it affects primarily aggregate supply.
B)   aggregate supply. In the short run, it affects primarily saving, investment, and growth.
C)   saving, investment, and growth. In the short run, it affects primarily aggregate demand.
D)   saving, investment, and growth. In the short run, it affects primarily aggregate supply.E) A) and B)
F) None of the above

Question 7

A decrease in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so decreases investment spending decreases.
C)   decreases the interest rate and so investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) B) and C)
F) B) and D)

Question 8

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. The multiplier for this economy is

Accepted Answer

A)   2.85.
B)   1.53.
C)   4.00.
D)   7.00.E) C) and D)
F) A) and B)

Question 9

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises...

Question 10

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 11

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Accepted Answer

supply, fa...

Question 12

Most economists believe that fiscal policy

Accepted Answer

A)   only affects aggregate demand and not aggregate supply.
B)   primarily affects aggregate demand.
C)   primarily effects aggregate supply.
D)   only affects aggregate supply and not aggregate demand.E) A) and C)
F) B) and D)

Question 13

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 14

If the price level rises, then

Accepted Answer

A)   the interest rate falls and spending on goods and services falls.
B)   the interest rate falls and spending on goods and services rises.
C)   the interest rate rises and spending on goods and services falls.
D)   the interest rate rises and spending on goods and services rises.E) A) and B)
F) None of the above

Question 15

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) B) and D)
F) All of the above

Question 16

If taxes

Accepted Answer

A)   increase, then consumption increases, and aggregate demand shifts leftward.
B)   increase, then consumption decreases, and aggregate demand shifts rightward.
C)   decrease, then consumption increases, and aggregate demand shifts rightward.
D)   decrease, then consumption decreases, and aggregate demand shifts leftward.E) A) and B)
F) B) and C)

Question 17

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 18

Liquidity preference theory is most relevant to the

Accepted Answer

A)   short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)   short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)   long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)   long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) None of the above
F) A) and D)

Question 19

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

Question 20

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Accepted Answer

A)   purchase government bonds, which will increase the money supply.
B)   purchase government bonds, which will reduce the money supply.
C)   sell government bonds, which will increase the money supply.
D)   sell government bonds, which will reduce the money supply.E) All of the above
F) A) and C)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

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How does a reduction in the money supply by the Fed make owning stocks less attractive?

Correct AnswerverifiedThe reduction in the money supply raises...View AnswerShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases, the int...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The is the most important automatic stabilizer.

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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. The multiplier for this economy is

Correct AnswerverifiedShow Answer

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

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The Fed is concerned about stock market booms because the booms

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

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If the price level rises, then

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If taxes

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A decrease in government spending

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Liquidity preference theory is most relevant to the

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Which of the following correctly explains the crowding-out effect?

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Most economists believe that fiscal policy

Correct AnswerverifiedShow Answer

In the long run, fiscal policy primarily affects

Correct AnswerverifiedShow Answer

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply affect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The reduction in the money supply raises...
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When the money supply increases, the int...
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An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

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supply, fa...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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