Question 1

The economy is in long-run equilibrium.Aggregate demand then shifts left $50 billion.The government wants to change its spending in order to avoid a recession.If the crowding-out effect is always half as strong as the multiplier effect,and if the MPC equals 0.9,by how much does government purchases have to change?

Accepted Answer

A)  increase $10 billion
B)  increase $50 billion
C)  increase $100 billion
D)  None of the above is correct.E) B) and C)
F) None of the above

Question 2

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 3

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Accepted Answer

A)  interest rates rise as the Fed reduces the quantity of money demanded.
B)  interest rates fall as the Fed reduces the supply of money.
C)  people will want to hold less money as the cost of holding it falls.
D)  people will want to hold more money as the cost of holding it falls.E) A) and D)
F) A) and C)

Question 4

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement
B)  buy bonds and lower the reserve requirement
C)  sell bonds and raise the reserve requirement
D)  sell bonds and lower the reserve requirementE) B) and D)
F) B) and C)

Question 5

According to the theory of liquidity preference,an increase 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) C) and D)
F) A) and B)

Question 6

Sometimes during wars government expenditures are larger than normal.To reduce the effects this spending creates on interest rates

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds.
B)  the Federal Reserve could increase the money supply by selling bonds.
C)  the Federal Reserve could decrease the money supply by buying bonds.
D)  the Federal Reserve could decrease the money supply by selling bonds.E) B) and D)
F) B) and C)

Question 7

When the price level falls,the interest rate

Accepted Answer

A)  rises.When the money supply falls, the interest rate rises.
B)  rises.When the money supply falls, the interest rate falls.
C)  falls.When the money supply falls, the interest rate rises.
D)  falls.When the money supply falls, the interest rate falls.E) A) and B)
F) B) and D)

Question 8

For the following questions, use the diagram below:
Figure 34-3
 
-Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be

Accepted Answer

A)  an increase in the money supply.
B)  a decrease in government purchases.
C)  an increase in taxes.
D)  All of the above are correct.E) A) and C)
F) A) and D)

Question 9

In the short run,a decrease 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 D)
F) None of the above

Question 10

An increase in the money supply shifts the aggregate supply curve right.

Accepted Answer

A) True 
 B)False

Question 11

For the following questions, consult the diagram below:
Figure 34-1
 
-Refer to Figure 34-1.There is excess money demand at an interest rate of

Accepted Answer

A)  2 percent.
B)  3 percent.
C)  4 percent.
D)  None of the above is correct.E) A) and C)
F) B) and C)

Question 12

Figure 34-2
 
-In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?

Accepted Answer

A)  1, 2, 3, 4
B)  1, 4, 3, 2
C)  3, 4, 2, 1
D)  3, 2, 1, 4E) All of the above
F) B) and C)

Question 13

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)  Jim increases his consumption spending.
B)  Firms sell fewer shares of new stock.
C)  Firms spend less on investment.
D)  None of the above is correct.E) A) and D)
F) None of the above

Question 14

Opponents of active stabilization policy

Accepted Answer

A)  generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)  generally agree that fiscal policy has no impact in the long run.
C)  believe some effects of monetary policy may be long-lived.
D)  think the Fed should simply try to fine tune the economy.E) A) and D)
F) None of the above

Question 15

Which of the following shifts money demand to the right?

Accepted Answer

A)  an increase in the price level
B)  a decrease in the price level
C)  an increase in the interest rate
D)  a decrease in the interest rateE) A) and D)
F) All of the above

Question 16

The positive feedback from aggregate demand to investment is called

Accepted Answer

A)  the investment multiplier.
B)  the stock-market effect.
C)  the investment accelerator.
D)  the crowding-in multiplier.E) None of the above
F) A) and D)

Question 17

The government-purchases multiplier is defined as

Accepted Answer

A)  MPC.
B)  1 - MPC.
C)  1/MPC.
D)  1/(1 - MP
C)  .E) B) and D)
F) C) and D)

Question 18

For the following questions, use the diagram below:
Figure 34-3
 
-Refer to Figure 34-3.Which of the following is correct?

Accepted Answer

A)  A wave of optimism could move the economy from a to B
B)  If aggregate demand moves from AD₁ to AD₂ the economy will stay at b in both the short and long run.
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 19

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will

Accepted Answer

A)  increase and the quantity of money demanded will decrease.
B)  increase and the quantity of money demanded will increase.
C)  decrease and the quantity of money demanded will decrease.
D)  decrease and the quantity of money demanded will increase.E) None of the above
F) A) and B)

Question 20

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate demand curve is correct?

Accepted Answer

A)  The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.
B)  The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes.
C)  The wealth effect is relatively large because money holdings are a significant portion of most households' wealth.
D)  None of the above is correct.E) None of the above
F) A) and B)

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

The positive feedback from aggregate demand to investment is called

Correct Answer
verified

In the short run,a decrease in the money supply causes interest rates to

Correct Answer
verified

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

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

Correct Answer
verified

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.Which of the following is correct?

Correct Answer
verified

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be

Correct Answer
verified

When the price level falls,the interest rate

Correct Answer
verified

Figure 34-2 -In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?

Correct Answer
verified

An increase in the money supply shifts the aggregate supply curve right.

Correct Answer
verified

Sometimes during wars government expenditures are larger than normal.To reduce the effects this spending creates on interest rates

Correct Answer
verified

Which of the following Fed actions would both increase the money supply?

Correct Answer
verified

The government-purchases multiplier is defined as

Correct Answer
verified

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct Answer
verified

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Correct Answer
verified

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate demand curve is correct?

Correct Answer
verified

Which of the following shifts money demand to the right?

Correct Answer
verified

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.There is excess money demand at an interest rate of

Correct Answer
verified

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will

Correct Answer
verified

Which of the following actions might we logically expect to result from rising stock prices?

Correct Answer
verified

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

The positive feedback from aggregate demand to investment is called

Correct AnswerverifiedShow Answer

In the short run,a decrease in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.Which of the following is correct?

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 34-3 -Refer to Figure 34-3.If the economy is at point b,a policy to restore full employment would be

Correct AnswerverifiedShow Answer

When the price level falls,the interest rate

Correct AnswerverifiedShow Answer

Figure 34-2 -In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?

Correct AnswerverifiedShow Answer

An increase in the money supply shifts the aggregate supply curve right.

Correct AnswerverifiedShow Answer

Sometimes during wars government expenditures are larger than normal.To reduce the effects this spending creates on interest rates

Correct AnswerverifiedShow Answer

Which of the following Fed actions would both increase the money supply?

Correct AnswerverifiedShow Answer

The government-purchases multiplier is defined as

Correct AnswerverifiedShow Answer

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct AnswerverifiedShow Answer

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Correct AnswerverifiedShow Answer

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate demand curve is correct?

Correct AnswerverifiedShow Answer

Which of the following shifts money demand to the right?

Correct AnswerverifiedShow Answer

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.There is excess money demand at an interest rate of

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will

Correct AnswerverifiedShow Answer

Which of the following actions might we logically expect to result from rising stock prices?

Correct AnswerverifiedShow Answer

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