Question 1

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

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)   nominal output
B)   real output
C)   the opportunity cost of holding money
D)   the quantity of moneyE) A) and B)
F) A) and C)

Question 3

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)   the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)   the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)   the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)   the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) B) and D)
F) B) and C)

Question 4

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 D)
F) None of the above

Question 5

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

Question 6

According to the theory of liquidity preference, a decrease in the price level causes the

Accepted Answer

A)   interest rate and investment to rise.
B)   interest rate and investment to fall.
C)   interest rate to rise and investment to fall.
D)   interest rate to fall and investment to rise.E) A) and C)
F) A) and D)

Question 7

Critics of stabilization policy argue that

Accepted Answer

A)   there is a lag between the time policy is passed and the time policy has an impact on the economy.
B)   the impact of policy may last longer than the problem it was designed to offset.
C)   policy can be a source of, instead of a cure for, economic fluctuations.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 8

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

Question 9

If the Fed increases the money supply,

Accepted Answer

A)   the interest rate increases, which tends to raise stock prices.
B)   the interest rate increases, which tends to reduce stock prices.
C)   the interest rate decreases, which tends to raise stock prices.
D)   the interest rate decreases, which tends to reduce stock prices.E) All of the above
F) A) and B)

Question 10

Figure 34-1 
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)   If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall.
B)   If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise.
C)   Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium.
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 11

Assume the following. -The MPC has a value of 0.8.
-The relationship between the interest rate, r, and investment, I, is given by the equation,
I = 20,000 - br,
Where b is a positive constant.
-Government purchases, G, are increased by $1,000.
In which of the following cases would there be no crowding out?

Accepted Answer

A)   b = 0
B)   b = 0.2
C)   b = 0.8
D)   b = 1E) None of the above
F) B) and C)

Question 12

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 multiplier for this economy is

Accepted Answer

A)   1.31.
B)   6.25.
C)   2.78.
D)   2.27.E) A) and B)
F) None of the above

Question 13

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
B)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand.
C)   $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
D)   $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.E) A) and B)
F) A) and C)

Question 14

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 15

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

A)   sell interest-bearing assets, causing the interest rate to decrease.
B)   sell interest-bearing assets, causing the interest rate to increase.
C)   buy interest-bearing assets, causing the interest rate to decrease.
D)   buy interest-bearing assets, causing the interest rate to increase.E) B) and C)
F) A) and D)

Question 16

For the U.S. economy, money holdings are a

Accepted Answer

A)   large part of household wealth, and so the interest-rate effect is large.
B)   large part of household wealth, and so the wealth effect is large.
C)   small part of household wealth, and so the interest-rate effect is small.
D)   small part of household wealth, and so the wealth effect is small.E) All of the above
F) B) and D)

Question 17

In the early 1960s, the Kennedy administration made considerable use of

Accepted Answer

A)   fiscal policy to stimulate the economy.
B)   fiscal policy to slow down the economy.
C)   monetary policy to stimulate the economy.
D)   monetary policy to slow down the economy.E) A) and B)
F) B) and D)

Question 18

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 D)
F) A) and C)

Question 19

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)   level of real output only.
B)   interest rate only.
C)   level of real output and by the interest rate.
D)   Federal Reserve.E) C) and D)
F) B) and C)

Question 20

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

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

For the U.S. economy, money holdings are a

Correct Answer
verified

According to the theory of liquidity preference, a decrease in the price level causes the

Correct Answer
verified

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 multiplier for this economy is

Correct Answer
verified

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct Answer
verified

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Stock prices often rise when the Fed raises interest rates.

Correct Answer
verified

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

Correct Answer
verified

According to liquidity preference theory, if there were a surplus of money, then

Correct Answer
verified

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
verified

According to liquidity preference theory, if the price level

Correct Answer
verified

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

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Correct Answer
verified

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

Correct Answer
verified

In the early 1960s, the Kennedy administration made considerable use of

Correct Answer
verified

When there is an excess supply of money,

Correct Answer
verified

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

For the U.S. economy, money holdings are a

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, a decrease in the price level causes the

Correct AnswerverifiedShow 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 multiplier for this economy is

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct AnswerverifiedShow Answer

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if there were a surplus of money, then

Correct AnswerverifiedShow Answer

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

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

Correct AnswerverifiedShow Answer

In the early 1960s, the Kennedy administration made considerable use of

Correct AnswerverifiedShow Answer

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

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The nominal interest rate on currency is...
View Answer

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