Question 1

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A)   the interest-rate effect.
B)   the exchange-rate effect.
C)   the theory of liquidity preference.
D)   the wealth effect.E) A) and C)
F) All of the above

Question 2

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

Accepted Answer

output, pr...

Question 3

If the interest rate is below the Fed's target, the Fed should

Accepted Answer

A)   buy bonds to increase bank reserves.
B)   buy bonds to decrease bank reserves.
C)   sell bonds to increase bank reserves.
D)   sell bonds to decrease bank reserves.E) None of the above
F) All of the above

Question 4

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)   contribute to a more stable level of output.
B)   mitigate the crowding-out effect.
C)   eliminate the economy's automatic stabilizers.
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 5

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 real interest rate is lower at Y2 than it is at Y1.
B)   the quantity of money is the same at Y1 as it is at Y2.
C)   the price level is lower at r2 than it is at r1.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 6

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) None of the above
F) A) and B)

Question 7

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)   and taxes to fall.
B)   and taxes to rise.
C)   to rise and taxes to fall.
D)   to fall and taxes to rise.E) A) and B)
F) A) and C)

Question 8

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

Question 9

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) A) and C)
F) None of the above

Question 10

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

Question 11

Fiscal policy affects the economy

Accepted Answer

A)   only in the short run.
B)   only in the long run.
C)   in both the short and long run.
D)   in neither the short nor the long run.E) A) and B)
F) A) and D)

Question 12

The Federal Funds rate is the interest rate

Accepted Answer

A)   banks charge each other for short-term loans.
B)   the Fed charges depository institutions for short-term loans.
C)   the Fed pays on deposits.
D)   interest rate on 3 month Treasury bills.E) A) and B)
F) A) and C)

Question 13

As the interest rate falls,

Accepted Answer

A)   the quantity of money demanded falls, which would reduce a shortage.
B)   the quantity of money demanded falls, which would reduce a surplus.
C)   the quantity of money demanded rises, which would reduce a shortage.
D)   the quantity of money demanded rises, which would reduce a surplus.E) A) and B)
F) A) and C)

Question 14

Assume the MPC is 0.72. The multiplier is

Accepted Answer

A)   4.53.
B)   1.39.
C)   2.57.
D)   3.57.E) All of the above
F) None of the above

Question 15

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. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)   wealth effect.
B)   interest-rate effect.
C)   exchange-rate effect.
D)   Fisher effect.E) A) and D)
F) A) and C)

Question 16

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect, but not the crowding-out effect
C)   the crowding-out effect, but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) A) and D)
F) B) and C)

Question 17

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 18

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)   in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.
B)   people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks will respond by lowering the interest rates they offer.
D)   there is a shortage of money.E) A) and B)
F) A) and C)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

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 will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks will respond by lowering the interest rates they offer.
D)   in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.E) All of the above
F) A) and B)

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy affects the economy

Correct Answer
verified

Which of the following events shifts aggregate demand rightward?

Correct Answer
verified

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Correct Answer
verified

During periods of expansion, automatic stabilizers cause government expenditures

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Correct Answer
verified

If the MPC is 0, then the multiplier is

Correct Answer
verified

Correct Answer
verified

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified

Assume the MPC is 0.72. The multiplier is

Correct Answer
verified

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct Answer
verified

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Correct Answer
verified

If the interest rate is below the Fed's target, the Fed should

Correct Answer
verified

The Federal Funds rate is the interest rate

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

As the interest rate falls,

Correct Answer
verified

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy affects the economy

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Correct AnswerverifiedShow Answer

During periods of expansion, automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Correct AnswerverifiedShow Answer

If the MPC is 0, then the multiplier is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.72. The multiplier is

Correct AnswerverifiedShow Answer

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct AnswerverifiedShow Answer

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed should

Correct AnswerverifiedShow Answer

The Federal Funds rate is the interest rate

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

As the interest rate falls,

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified