Question 1

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

Question 2

When households find themselves holding too much money, they respond by

Accepted Answer

A)   purchasing interest-earning financial assets and interest rates fall.
B)   purchasing interest-earning financial assets and interest rates rise.
C)   holding the extra money and interest rates rise.
D)   selling interest-earning financial assets, which eliminates the excess supply of money.E) A) and B)
F) All of the above

Question 3

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)   size of the money supply.
B)   growth rate of the money supply.
C)   federal funds rate.
D)   discount rate.E) A) and D)
F) None of the above

Question 4

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)   an increase in government expenditures or a decrease in the price level
B)   a decrease in government expenditures or an increase in the price level
C)   an increase in government expenditures, but not a change in the price level
D)   a decrease in the price level, but not an increase in government expendituresE) C) and D)
F) B) and D)

Question 5

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 6

Changes in the interest rate help explain

Accepted Answer

A)   only the slope of, not shifts of aggregate demand.
B)   only shifts of, not the slope of aggregate demand.
C)   both the slope of and shifts of aggregate demand.
D)   neither the slope nor shifts of aggregate demand.E) B) and D)
F) B) and C)

Question 7

If the MPC is 0, then the multiplier is

Accepted Answer

A)   0.
B)   1.
C)   infinite.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 8

When Congress reduces spending in order to balance the government's budget, it needs to consider

Accepted Answer

A)   both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.
B)   only the short-run effects on aggregate demand and aggregate supply.
C)   only the long-run effects on saving and growth.
D)   only the long-run effects on aggregate demand and aggregate supply.E) C) and D)
F) A) and B)

Question 9

According to the theory of liquidity preference, if output decreases

Accepted Answer

A)   people want to hold more money. This response is shown as a movement along the money demand curve.
B)   people want to hold more money. This response is shown as a shift of the money demand curve.
C)   people want to hold less money. This response is shown as a movement along the money demand curve.
D)   people want to hold less money. This response is shown as a shift of the money demand curve.E) A) and C)
F) All of the above

Question 10

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 11

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. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A)   the quantity of goods and services demanded is higher at P2 than it is at P1.
B)   the quantity of money is higher at Y1 than it is at Y2.
C)   an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 12

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 13

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 14

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)   3.2 for government purchases and 2.0 for tax cuts.
B)   2.4 for government purchases and 1.4 for tax cuts.
C)   1.6 for government purchases and 1.0 for tax cuts.
D)   1.6 for government purchases and 0.4 for tax cuts.E) A) and C)
F) None of the above

Question 15

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou...

Question 16

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)   When interest rates fall, In-and-Out Convenience Stores decides to build some new stores.
B)   The exchange rate falls, so French restaurants in Paris buy more Kansas beef.
C)   Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen.
D)   With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.E) All of the above
F) None of the above

Question 17

If people decide to hold less money, then

Accepted Answer

A)   money demand decreases, there is an excess supply of money, and interest rates rise.
B)   money demand decreases, there is an excess supply of money, and interest rates fall.
C)   money demand increases, there is an excess demand for money, and interest rates fall.
D)   money demand increases, there is an excess demand for money, and interest rates rise.E) None of the above
F) B) and D)

Question 18

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases,...

Question 19

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 20

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

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

Correct Answer
verified

If the MPC is 0, then the multiplier is

Correct Answer
verified

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct Answer
verified

Changes in the interest rate help explain

Correct Answer
verified

A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases,...
View Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct Answer
verified

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

Correct Answer
verified

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct Answer
verified

When households find themselves holding too much money, they respond by

Correct Answer
verified

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _ and _.

Correct Answer
verified
demand, ou...
View Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct Answer
verified

If the MPC is 4/5, the multiplier is 5/4.

Correct Answer
verified

When Congress reduces spending in order to balance the government's budget, it needs to consider

Correct Answer
verified

If people decide to hold less money, then

Correct Answer
verified

Which of the following events shifts aggregate demand rightward?

Correct Answer
verified

According to the theory of liquidity preference, if output decreases

Correct Answer
verified

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct Answer
verified

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct Answer
verified

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

If the MPC is 0, then the multiplier is

Correct AnswerverifiedShow Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct AnswerverifiedShow Answer

Changes in the interest rate help explain

Correct AnswerverifiedShow Answer

A decrease in taxes ____ aggregate demand through larger _____ by households.

Correct Answerverifiedincreases,...View AnswerShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct AnswerverifiedShow Answer

When households find themselves holding too much money, they respond by

Correct AnswerverifiedShow Answer

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Correct Answerverifieddemand, ou...View AnswerShow Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Correct AnswerverifiedShow Answer

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

If the MPC is 4/5, the multiplier is 5/4.

Correct AnswerverifiedShow Answer

When Congress reduces spending in order to balance the government's budget, it needs to consider

Correct AnswerverifiedShow Answer

If people decide to hold less money, then

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if output decreases

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct AnswerverifiedShow Answer

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

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A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
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increases,...
View Answer

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verified

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _ and _.

Correct Answer
verified
demand, ou...
View Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
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