Question 1

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

Accepted Answer

A) True 
 B)False

Question 2

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases,the inte...

Question 3

According to the interest-rate effect,an increase in the price level will

Accepted Answer

A)   increase money demand and interest rates.Investment declines.
B)   increase money demand and interest rates.Investment increases.
C)   increase money demand,reduce interest rates,and investment increases.
D)   decrease money demand and interest rates.Investment declines.E) A) and B)
F) A) and C)

Question 4

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)   "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent."
B)   "Today the Fed lowered the discount rate by a quarter of a percentage point,and this action will force the federal funds rate to drop by the same amount."
C)   "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent."
D)   "Today the Fed took a step toward contracting aggregate demand,and this was done by lowering the federal funds rate to 5.25 percent."E) All of the above
F) B) and C)

Question 5

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

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

Question 6

When the interest rate is below the equilibrium level,

Accepted Answer

A)   the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold.
B)   people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 7

Figure 21-2.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 21-2.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) B) and C)
F) None of the above

Question 8

Macroeconomic forecasts are

Accepted Answer

A)   precise;this makes policy lags less relevant.
B)   precise;this makes policy lags more relevant.
C)   imprecise;this makes policy lags less relevant.
D)   imprecise;this makes policy lags more relevant.E) None of the above
F) B) and D)

Question 9

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

A)   $151.25.
B)   $166.75.
C)   $170.20.
D)   $175.00.E) All of the above
F) C) and D)

Question 10

If the interest rate is above the Fed's target,the Fed should

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) A) and B)
F) A) and C)

Question 11

The multiplier for changes in government spending is calculated as

Accepted Answer

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

Question 12

Which of the following shifts aggregate demand to the right?

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) All of the above

Question 13

Consider the following sequence of events: price level ↑\uparrow↑  ⟹  \implies⟹ demand for money  ↑\uparrow↑  ⟹  \implies⟹ equilibrium interest rate  ↑\uparrow↑ 
   ⟹  \implies⟹ quantity of goods and services demanded  ↓\downarrow↓ 
This sequence explains why the

Accepted Answer

A)   money-supply curve is vertical.
B)   aggregate-demand curve shifts leftward in response to a monetary injection.
C)   aggregate-demand curve shifts rightward in response to a monetary injection.
D)   aggregate-demand curve slopes downward. E) B) and C)
F) B) and D)

Question 14

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 15

If the interest rate is below the Fed's target,the Fed would

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) All of the above
F) A) and B)

Question 16

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

Question 17

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

Question 18

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)   monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)   monetary policy can be described either in terms of the exchange rate or the interest rate.
C)   monetary policy must be described in terms of the money supply.
D)   monetary policy must be described in terms of the interest rate.E) B) and C)
F) B) and D)

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

The theory of liquidity preference was developed by Irving Fisher.

Correct Answer
verified

If the interest rate is above the Fed's target,the Fed should

Correct Answer
verified

Macroeconomic forecasts are

Correct Answer
verified

Which of the following policy actions shifts the aggregate-demand curve?

Correct Answer
verified

The multiplier for changes in government spending is calculated as

Correct Answer
verified

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct Answer
verified
When the money supply increases,the inte...
View Answer

According to the interest-rate effect,an increase in the price level will

Correct Answer
verified

If the interest rate is below the Fed's target,the Fed would

Correct Answer
verified

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

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 shifts aggregate demand to the right?

Correct Answer
verified

When the interest rate is below the equilibrium level,

Correct Answer
verified

Consider the following sequence of events: price level $\uparrow$ $\implies$ demand for money $\uparrow$ $\implies$ equilibrium interest rate $\uparrow$ $\implies$ quantity of goods and services demanded $\downarrow$ This sequence explains why the

Correct Answer
verified

The positive feedback from aggregate demand to investment is called

Correct Answer
verified

Correct Answer
verified

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct Answer
verified

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

Correct Answer
verified

The theory of liquidity preference illustrates the principle that

Correct Answer
verified

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Correct Answer
verified

Stock prices often rise when the Fed raises interest rates.

Correct Answer
verified

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

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

If the interest rate is above the Fed's target,the Fed should

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

Which of the following policy actions shifts the aggregate-demand curve?

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases,the inte...View AnswerShow Answer

According to the interest-rate effect,an increase in the price level will

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target,the Fed would

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

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 shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

When the interest rate is below the equilibrium level,

Correct AnswerverifiedShow Answer

Consider the following sequence of events: price level ↑\uparrow↑ ⟹ \implies⟹ demand for money ↑\uparrow↑ ⟹ \implies⟹ equilibrium interest rate ↑\uparrow↑ ⟹ \implies⟹ quantity of goods and services demanded ↓\downarrow↓ This sequence explains why the

Correct AnswerverifiedShow Answer

The positive feedback from aggregate demand to investment is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Correct AnswerverifiedShow Answer

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the money supply increases,the inte...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Consider the following sequence of events: price level $\uparrow$ $\implies$ demand for money $\uparrow$ $\implies$ equilibrium interest rate $\uparrow$ $\implies$ quantity of goods and services demanded $\downarrow$ This sequence explains why the

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified