Question 1

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending.
B)  increases the money supply and thereby reduces interest rates.
C)  increases income and thereby increases consumer spending.
D)  decreases income and thereby increases consumer spending.E) A) and D)
F) A) and B)

Question 2

Tax increases

Accepted Answer

A)  and increases in government expenditures shift aggregate demand right.
B)  and increases in government expenditures shift aggregate demand left.
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left.
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right.E) A) and B)
F) All of the above

Question 3

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive.
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile.
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old.
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.E) None of the above
F) C) and D)

Question 4

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

Question 5

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.
. 1 to Y2 is explained as follows: A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2." class="answers-bank-image d-inline" rel="preload" > 1 to Y2 is explained as follows: A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.E) A) and D)
F) A) and C)

Question 6

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)  increasing the money supply, which raises interest rates.
B)  increasing the money supply, which lowers interest rates.
C)  decreasing the money supply, which raises interest rates.
D)  decreasing the money supply, which lowers interest rates.E) All of the above
F) A) and D)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

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) All of the above
F) B) and C)

Question 10

When government expenditures increase, the interest rate

Accepted Answer

A)  increases, making the change in aggregate demand larger.
B)  increases, making the change in aggregate demand smaller
C)  decreases, making the change in aggregate demand larger.
D)  decreases, making the change in aggregate demand smaller.E) A) and B)
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) None of the above
F) B) and D)

Question 12

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)  an "easy" monetary policy.
B)  a "passive" monetary policy.
C)  a "practical" monetary policy.
D)  an "active" monetary policy.E) B) and C)
F) A) and D)

Question 13

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, 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) All of the above

Question 14

People are likely to want to hold more money if the interest rate

Accepted Answer

A)  increases, making the opportunity cost of holding money rise.
B)  increases, making the opportunity cost of holding money fall.
C)  decreases, making the opportunity cost of holding money rise.
D)  decreases, making the opportunity cost of holding money fall.E) C) and D)
F) A) and D)

Question 15

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 16

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A)  an increase in investment spending.
B)  an increase in national savings.
C)  an increase in private savings.
D)  an increase in personal consumption.E) A) and B)
F) B) and C)

Question 17

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage
B)  the unemployment compensation system
C)  the federal income tax
D)  the welfare systemE) A) and B)
F) A) and C)

Question 18

Figure 34-8 1 to AD2. B) shift aggregate demand from AD1 to AD3. C) cause movement from point A to point B along AD1. D) have no effect on aggregate demand." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-8. An increase in government purchases will

Accepted Answer

A)  shift aggregate demand from AD1 to AD2.
B)  shift aggregate demand from AD1 to AD3.
C)  cause movement from point A to point B along AD1.
D)  have no effect on aggregate demand.E) None of the above
F) All of the above

Question 19

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r...

Question 20

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

Accepted Answer

A) True 
 B)False

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

Tax increases

Correct Answer
verified

People are likely to want to hold more money if the interest rate

Correct Answer
verified

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Correct Answer
verified

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not an automatic stabilizer?

Correct Answer
verified

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

Correct Answer
verified

Which of the following events shifts aggregate demand rightward?

Correct Answer
verified

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

Correct Answer
verified

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct Answer
verified

When government expenditures increase, the interest rate

Correct Answer
verified

The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answer
verified
interest-r...
View Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct Answer
verified

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Correct Answer
verified

A reduction in personal income taxes increases Aggregate Demand through

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

A policy that results in slow and steady growth of the money supply is an example of

Correct Answer
verified

An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

Correct Answer
verified

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

Correct Answer
verified

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

Tax increases

Correct AnswerverifiedShow Answer

People are likely to want to hold more money if the interest rate

Correct AnswerverifiedShow Answer

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Correct AnswerverifiedShow Answer

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not an automatic stabilizer?

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 shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct AnswerverifiedShow Answer

When government expenditures increase, the interest rate

Correct AnswerverifiedShow Answer

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answerverifiedinterest-r...View AnswerShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct AnswerverifiedShow Answer

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Correct AnswerverifiedShow Answer

A reduction in personal income taxes increases Aggregate Demand through

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct AnswerverifiedShow Answer

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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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Correct Answer
verified

The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answer
verified
interest-r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

Correct Answer
verified

Correct Answer
verified