Question 1

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)  the interest rate falls and aggregate supply is relatively flat
B)  the interest rate falls and aggregate supply is relatively steep
C)  the interest rate rises and aggregate supply is relatively flat
D)  the interest rate rises and aggregate supply is relatively steepE) None of the above
F) C) and D)

Question 2

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)  Keynesian in nature, and that his view is more valid for the long run than for the short run.
B)  classical in nature, and that his view is more valid for the long run than for the short run.
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run.
D)  classical in nature, and that his view is more valid for the short run than for the long run.E) None of the above
F) A) and D)

Question 3

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. 1 = 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, 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." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-2. 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 C)
F) B) and D)

Question 4

According to classical macroeconomic theory,

Accepted Answer

A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)  output is determined by the supplies of capital and labor and the available production technology.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 5

Figure 21-5. On the figure, MS represents money supply and MD represents money demand. 2 to MD1 is consistent with which of the following sets of events? A) The government cuts taxes, resulting in an increase in people's incomes. B) The government reduces government spending, resulting in a decrease in people's incomes. C) The Federal Reserve increases the supply of money, which decreases the interest rate. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes.
B)  The government reduces government spending, resulting in a decrease in people's incomes.
C)  The Federal Reserve increases the supply of money, which decreases the interest rate.
D)  All of the above are correct.E) A) and D)
F) B) and C)

Question 6

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)  neither the level of output nor the level of prices.
B)  the level of output, but not in the level of prices.
C)  the level of prices, but not in the level of output.
D)  the level of output and in the level of prices.E) A) and B)
F) A) and C)

Question 7

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

Question 8

Figure 21-4. On the figure, MS represents money supply and MD represents money demand. 3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then A) there will be an increase in the equilibrium quantity of goods and services demanded. B) there will be a decrease in the equilibrium interest rate. C) the aggregate-demand curve will shift to the right. D) fewer firms will choose to borrow to build new factories and buy new equipment." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded.
B)  there will be a decrease in the equilibrium interest rate.
C)  the aggregate-demand curve will shift to the right.
D)  fewer firms will choose to borrow to build new factories and buy new equipment.E) A) and D)
F) A) and B)

Question 9

For the following questions, use the diagram below:
Figure 21-7. 
-Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

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

Question 10

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 11

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)  The price level rises, causing the interest rate to fall.
B)  The price level falls, causing the interest rate to fall.
C)  The money supply increases, causing the interest rate to fall.
D)  The money supply decreases, causing the interest rate to fall.E) C) and D)
F) A) and C)

Question 12

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)  $1480
B)  $480
C)  $160
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 13

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock-market boom increases households' wealth by $300, and there is an operative crowding-out effect.
B)  A stock-market boom increases households' wealth by $275, and there is an operative crowding-out effect.
C)  An economic boom overseas increases the demand for U.S. net exports by $240, and there is no crowding-out effect.
D)  Aggregate demand could increase by $1,500 in response to any of these events.E) B) and C)
F) A) and D)

Question 14

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 15

Which among the following assets is the most liquid?

Accepted Answer

A)  corporate bonds
B)  fine art
C)  deposits that can be withdrawn using ATMs
D)  shares of stockE) All of the above
F) A) and B)

Question 16

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

Question 17

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) All of the above
F) None of the above

Question 18

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase government expenditures or increase the money supply
B)  increase government expenditures or decrease the money supply
C)  decrease government expenditures or increase the money supply
D)  decrease government expenditures or decrease the money supplyE) A) and B)
F) A) and C)

Question 19

Scenario 21-1. Take the following information as given for a small, imaginary economy:
 - When income is  $10,000\$ 10,000$10,000 , consingtion spending is  $6,500\$ 6,500$6,500 
- Whan income is  $11,000\$ 11,000$11,000 , cansumption spending is  $7,300\$ 7,300$7,300 
-Refer to Scenario 21-1. The multiplier for this economy is

Accepted Answer

A)  2.86.
B)  2.98.
C)  4.00.
D)  5.00. E) B) and D)
F) B) and C)

Question 20

Assume the money market is initially in equilibrium. If the price level increases, 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) C) and D)
F) B) and D)

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

Correct Answer
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Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
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According to classical macroeconomic theory,

Correct Answer
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Correct Answer
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Permanent tax cuts shift the AD curve

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
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In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct Answer
verified

Correct Answer
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Figure 21-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
verified

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Correct Answer
verified

In which of the following cases does the aggregate-demand curve shift to the right?

Correct Answer
verified

Which of the following raises the interest rate?

Correct Answer
verified

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct Answer
verified

Scenario 21-1. Take the following information as given for a small, imaginary economy: - When income is $\$ 10,000$ , consingtion spending is $\$ 6,500$ - Whan income is $\$ 11,000$ , cansumption spending is $\$ 7,300$ -Refer to Scenario 21-1. The multiplier for this economy is

Correct Answer
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What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct Answer
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Which among the following assets is the most liquid?

Correct Answer
verified

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be

Correct Answer
verified

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 21-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

Which of the following raises the interest rate?

Correct AnswerverifiedShow Answer

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be

Correct AnswerverifiedShow Answer

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

Correct Answer
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Figure 21-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
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