Question 1

During the economic downturn of 2008-2009,the Federal Reserve

Accepted Answer

A)   used open-market operations to purchase mortgages and corporate debt,just as it frequently does even when the economy is functioning normally.
B)   took the unusual step of using open-market operations to purchase mortgages and corporate debt.
C)   explicitly set its target rate of inflation at zero.
D)   explicitly set its target rate of inflation well above zero.E) A) and D)
F) A) and C)

Question 2

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 3

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

Question 4

Which of the following events would shift money demand to the left?

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

Question 5

Figure 21-1 
-Refer to Figure 21-1.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) None of the above

Question 6

Suppose there is an increase in government spending.To stabilize output,the Federal Reserve would

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) B) and D)
F) C) and D)

Question 7

If the stock market booms,then

Accepted Answer

A)   aggregate demand increases,which the Fed could offset by increasing the money supply.
B)   aggregate supply increases,which the Fed could offset by increasing the money supply.
C)   aggregate demand increases,which the Fed could offset by decreasing the money supply.
D)   aggregate supply increases,which the Fed could offset by decreasing the money supply.E) A) and B)
F) A) and C)

Question 8

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)   changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) A) and B)
F) None of the above

Question 9

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 10

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)   shifts the aggregate demand curve to the right.
B)   has a multiplier effect.
C)   shifts the aggregate supply curve to the right,but this effect is likely more important in the long run.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 11

Which of the following raises the interest rate?

Accepted Answer

A)   an increase in government expenditures and an increase in the money supply
B)   an increase in government expenditures and a decrease in the money supply
C)   a decrease in government expenditures and an increase in the money supply
D)   a decrease in government expenditures and a decrease in the money supplyE) A) and C)
F) A) and B)

Question 12

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)   only the nominal interest rate
B)   both the nominal interest rate and the real interest rate
C)   only the interest rate on long-term bonds
D)   only the interest rate on short-term government bondsE) B) and D)
F) A) and D)

Question 13

People choose to hold a smaller quantity of money if

Accepted Answer

A)   the interest rate rises,which causes the opportunity cost of holding money to rise.
B)   the interest rate falls,which causes the opportunity cost of holding money to rise.
C)   the interest rate rises,which causes the opportunity cost of holding money to fall.
D)   the interest rate falls,which causes the opportunity cost of holding money to fall.E) None of the above
F) A) and C)

Question 14

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect,then

Accepted Answer

A)   the multiplier is probably zero.
B)   the multiplier is probably equal to one.
C)   the multiplier is probably greater than one.
D)   the multiplier is probably less than one.E) None of the above
F) B) and C)

Question 15

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 16

Assume the money market is initially in equilibrium.If the price level decreases,then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) A) and B)
F) C) and D)

Question 17

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Accepted Answer

A)   increase taxes
B)   increase the money supply
C)   increase government expenditures
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 18

Permanent tax cuts shift the AD curve

Accepted Answer

A)   farther to the right than do temporary tax cuts.
B)   not as far to the right as do temporary tax cuts.
C)   farther to the left than do temporary tax cuts.
D)   not as far to the left as do temporary tax cuts.E) All of the above
F) B) and D)

Question 19

Assume the multiplier is 5 and that the crowding-out effect is $20 billion.An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Accepted Answer

A)   right by $150 billion.
B)   right by $70 billion.
C)   right by $30 billion.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 20

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

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

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Correct AnswerverifiedShow Answer

People choose to hold a smaller quantity of money if

Correct AnswerverifiedShow Answer

The multiplier is computed as MPC / (1 - MPC).

Correct AnswerverifiedShow Answer

During the economic downturn of 2008-2009,the Federal Reserve

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium.If the price level decreases,then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

Which of the following raises the interest rate?

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

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

Correct AnswerverifiedShow Answer

Suppose there is an increase in government spending.To stabilize output,the Federal Reserve would

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

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

Figure 21-1 -Refer to Figure 21-1.If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

An increase in government spending on goods to build or repair infrastructure

Correct AnswerverifiedShow Answer

If the stock market booms,then

Correct AnswerverifiedShow Answer

Assume the multiplier is 5 and that the crowding-out effect is $20 billion.An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Correct AnswerverifiedShow Answer

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Correct AnswerverifiedShow Answer

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect,then

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

Correct Answer
verified

Correct Answer
verified