Question 1

Figure 34-1 
-Refer to Figure 34-1. If the current interest rate is 2 percent,

Accepted Answer

A)   there is an excess supply of money.
B)   people will sell more bonds, which drives interest rates up.
C)   as the money market moves to equilibrium, people will buy more goods.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 2

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)   The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
B)   An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
C)   A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
D)   An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.E) A) and D)
F) A) and C)

Question 3

In the short run, an increase in the money supply causes interest rates to

Accepted Answer

A)   increase, and aggregate demand to shift right.
B)   increase, and aggregate demand to shift left.
C)   decrease, and aggregate demand to shift right.
D)   decrease, and aggregate demand to shift left.E) A) and C)
F) None of the above

Question 4

According to liquidity preference theory, if the price level

Accepted Answer

A)   fell, the interest rate would rise, and induce investment spending to rise.
B)   fell, the interest rate would fall, and induce investment spending to fall.
C)   rose, the interest rate would rise, and induce investment spending to fall.
D)   rose, the interest rate would fall, and induce investment spending to rise.E) A) and B)
F) A) and C)

Question 5

Macroeconomic forecasts are

Accepted Answer

A)   precise; this makes policy lags less relevant.
B)   precise; this makes policy lags more relevant.
C)   imprecise; this makes policy lags less relevant.
D)   imprecise; this makes policy lags more relevant.E) All of the above
F) B) and C)

Question 6

When there is an excess supply of money,

Accepted Answer

A)   people will try to get rid of money causing interest rates to rise. Investment increases.
B)   people will try to get rid of money causing interest rates to fall. Investment decreases.
C)   people will try to get rid of money causing interest rates to fall. Investment increases.
D)   people will try to get rid of money causing interest rates to rise. Investment decreases.E) A) and B)
F) All of the above

Question 7

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)   the MPC is large and if the tax cut is permanent.
B)   the MPC is large and if the tax cut is temporary.
C)   the MPC is small and if the tax cut is permanent.
D)   the MPC is small and if the tax cut is temporary.E) None of the above
F) C) and D)

Question 8

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) A) and C)

Question 9

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Accepted Answer

A) True 
 B)False

Question 10

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Accepted Answer

A)   right by $130 billion.
B)   right by $70 billion.
C)   right by $50 billion.
D)   right by $10 billion.E) None of the above
F) A) and C)

Question 11

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) C) and D)
F) None of the above

Question 12

When the interest rate is above the equilibrium level,

Accepted Answer

A)   the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)   people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 13

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

A)   Keynesian in nature, and that her view is more valid for the long run than for the short run.
B)   classical in nature, and that her view is more valid for the long run than for the short run.
C)   Keynesian in nature, and that her view is more valid for the short run than for the long run.
D)   classical in nature, and that her view is more valid for the short run than for the long run.E) All of the above
F) C) and D)

Question 14

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 15

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 construction,E) A) and B)
F) A) and C)

Question 16

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

Accepted Answer

A)   there will be an increase in the equilibrium quantity of goods and services demanded.
B)   there will be a decrease in the equilibrium quantity of goods and services demanded.
C)   there will be an increase in the equilibrium interest rate.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) A) and B)
F) B) and D)

Question 17

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) C) and D)
F) A) and D)

Question 18

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa...

Question 19

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 B)
F) C) and D)

Question 20

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

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

According to liquidity preference theory, if the price level

Correct Answer
verified

Macroeconomic forecasts are

Correct Answer
verified

In the short run, an increase in the money supply causes interest rates to

Correct Answer
verified

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Correct Answer
verified
supply, fa...
View Answer

When there is an excess supply of money,

Correct Answer
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The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct Answer
verified

Correct Answer
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Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Correct Answer
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Monetary policy

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

Correct Answer
verified

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

Correct Answer
verified

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct Answer
verified

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct Answer
verified

A tax cut shifts the aggregate demand curve the farthest if

Correct Answer
verified

Other things the same, as the price level rises,

Correct Answer
verified

When the interest rate is above the equilibrium level,

Correct Answer
verified

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

According to liquidity preference theory, if the price level

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

In the short run, an increase in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

Monetary policy

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

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

Correct AnswerverifiedShow Answer

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow Answer

Other things the same, as the price level rises,

Correct AnswerverifiedShow Answer

When the interest rate is above the equilibrium level,

Correct AnswerverifiedShow Answer

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When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Correct Answer
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supply, fa...
View Answer

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