Question 1

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)   An increase in government expenditures decreases the interest rate and so increases investment spending.
B)   An increase in government expenditures increases the interest rate and so reduces investment spending.
C)   A decrease in government expenditures increases the interest rate and so increases investment spending.
D)   A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) A) and B)
F) A) and C)

Question 2

Which of the following statements is correct for the long run?

Accepted Answer

A)   Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.
C)   Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.E) B) and D)
F) C) and D)

Question 3

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 B)
F) B) and D)

Question 4

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

Question 5

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 6

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) A) and D)
F) A) and C)

Question 7

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 8

Figure 21-6.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.
1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Also,suppose the horizontal distance between the curves AD1 and AD3 is $20 billion.The extent of crowding out,for any particular level of the price level,is A)  the horizontal distance between the curves MD1 and MD2. B)  $40 billion. C)  $30 billion. D)  $20 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-6.Suppose the multiplier is 5 and the government increases its purchases by $10 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Also,suppose the horizontal distance between the curves AD1 and AD3 is $20 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)   the horizontal distance between the curves MD1 and MD2.
B)   $40 billion.
C)   $30 billion.
D)   $20 billion.E) A) and D)
F) All of the above

Question 9

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

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

Question 10

Other things equal,in the short run a higher price level leads households to

Accepted Answer

A)   increase consumption and firms to buy more capital goods.
B)   increase consumption and firms to buy fewer capital goods.
C)   decrease consumption and firms to buy more capital goods.
D)   decrease consumption and firms to buy fewer capital goods.E) B) and C)
F) All of the above

Question 11

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 B)
F) A) and C)

Question 12

According to classical macroeconomic theory,

Accepted Answer

A)   output is determined by the supplies of capital and labor and the available production technology.
B)   for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
C)   given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 13

Government purchases are said to have a

Accepted Answer

A)   multiplier effect on aggregate supply.
B)   multiplier effect on aggregate demand.
C)   liquidity-enhancing effect on aggregate supply.
D)   liquidity-enhancing effect on aggregate demand.E) A) and B)
F) None of the above

Question 14

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Accepted Answer

A)   buying bonds to increase the money supply
B)   buying bonds to decrease the money supply.
C)   selling bonds to increase the money supply.
D)   selling bonds to decrease the money supply.E) None of the above
F) B) and C)

Question 15

The _____ is the most important automatic stabilizer.

Accepted Answer

The answer of The _____ is the most important automatic...

Question 16

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S.mo...

Question 17

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 18

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 B)
F) A) and C)

Question 19

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

Question 20

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)   increase consumption spending.
B)   increase investment spending.
C)   increase both consumption and investment spending.
D)   None of the above is correct.E) A) and D)
F) All of the above

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

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
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Which of the following events shifts aggregate demand rightward?

Correct Answer
verified

Correct Answer
verified

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

When there is an excess supply of money,

Correct Answer
verified

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Correct Answer
verified

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

Correct Answer
verified

Government purchases are said to have a

Correct Answer
verified

Other things equal,in the short run a higher price level leads households to

Correct Answer
verified

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

Correct Answer
verified

The _____ is the most important automatic stabilizer.

Correct Answer
verified

What is the difference between monetary policy and fiscal policy?

Correct Answer
verified
The Federal Reserve Bank conducts U.S.mo...
View Answer

An increase in the money supply decreases the interest rate in the short run.

Correct Answer
verified

The Fed is concerned about stock market booms because the booms

Correct Answer
verified

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Correct Answer
verified

Which of the following correctly explains the crowding-out effect?

Correct Answer
verified

Which of the following statements is correct for the long run?

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
verified

According to classical macroeconomic theory,

Correct Answer
verified

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Correct Answer
verified

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

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Government purchases are said to have a

Correct AnswerverifiedShow Answer

Other things equal,in the short run a higher price level leads households to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The _____ is the most important automatic stabilizer.

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S.mo...View AnswerShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

Which of the following correctly explains the crowding-out effect?

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the long run?

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

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The Federal Reserve Bank conducts U.S.mo...
View Answer

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Correct Answer
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