Question 1

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary, ...

Question 2

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

Question 3

Which of the following shifts aggregate demand to the left?

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

Question 4

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)   increase aggregate demand in the short run and aggregate supply in the long run.
B)   increase aggregate supply in the short run and aggregate demand in the long run.
C)   only increase aggregate supply in the long run.
D)   only increase aggregate demand in the short run.E) A) and B)
F) A) and C)

Question 5

An increase in government spending shifts aggregate demand

Accepted Answer

A)   to the right. The larger the multiplier is, the farther it shifts.
B)   to the right. The larger the multiplier is, the less it shifts.
C)   to the left. The larger the multiplier is, the farther it shifts.
D)   to the left. The larger the multiplier is, the less it shifts.E) A) and D)
F) A) and B)

Question 6

The theory of liquidity preference is most helpful in understanding

Accepted Answer

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

Question 7

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, 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) C) and D)
F) None of the above

Question 8

An increase in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so investment spending decreases.
C)   decreases the interest rate and so increases investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) None of the above
F) A) and C)

Question 9

Figure 34-3 
-Refer to Figure 34-3. Which of the following sequences numbered arrows)  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 10

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

A)   a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
B)   a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero.
C)   a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
D)   while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.E) B) and C)
F) A) and B)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Accepted Answer

A)   $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
B)   $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand.
C)   $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
D)   $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.E) A) and D)
F) None of the above

Question 14

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)   increase the money supply, which will reduce interest rates.
B)   decrease the money supply, which will reduce interest rates.
C)   increase the money supply, which will increase interest rates.
D)   decrease the money supply, which will increase interest rates.E) All of the above
F) A) and D)

Question 15

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand decreases.
C)   The price level decreases.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 16

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 17

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households, the...

Question 18

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)   increase if there were a surplus in the money market.
B)   increase if there were a shortage in the money market.
C)   decrease if there were a surplus in the money market.
D)   decrease if there were a shortage in the money market.E) B) and C)
F) A) and D)

Question 19

The multiplier for changes in government spending is calculated as

Accepted Answer

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

Question 20

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, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P = P2,

Accepted Answer

A)   investment is lower than it is when P = P1.
B)   nominal output is higher than it is when P = P1.
C)   the expected rate of inflation is higher than it is when P = P1.
D)   the velocity of money is higher than it is when P = P1.E) B) and D)
F) A) and B)

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

The interest rate would fall and the quantity of money demanded would

Correct Answer
verified

An increase in government spending shifts aggregate demand

Correct Answer
verified

Economists who are skeptical about the relevance of "liquidity traps" argue that

Correct Answer
verified

To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

Correct Answer
verified

The multiplier for changes in government spending is calculated as

Correct Answer
verified

Which of the following shifts aggregate demand to the left?

Correct Answer
verified

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 Answer
verified

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

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 current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

Correct Answer
verified

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct Answer
verified

Correct Answer
verified

An increase in government spending

Correct Answer
verified

The theory of liquidity preference is most helpful in understanding

Correct Answer
verified

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

Correct Answer
verified

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct Answer
verified

An essential piece of the liquidity preference theory is the demand for money.

Correct Answer
verified

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

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

An increase in government spending shifts aggregate demand

Correct AnswerverifiedShow Answer

Economists who are skeptical about the relevance of "liquidity traps" argue that

Correct AnswerverifiedShow Answer

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

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

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

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 current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct AnswerverifiedShow Answer

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

Correct AnswerverifiedShow Answer

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in government spending

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

An essential piece of the liquidity preference theory is the demand for money.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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