Question 1

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

Question 2

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

Question 3

If,at some interest rate,the quantity of money demanded is greater than the quantity of money supplied,people will desire to

Accepted Answer

A)   sell interest-bearing assets,causing the interest rate to decrease.
B)   sell interest-bearing assets,causing the interest rate to increase.
C)   buy interest-bearing assets,causing the interest rate to decrease.
D)   buy interest-bearing assets,causing the interest rate to increase.E) A) and B)
F) C) and D)

Question 4

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, A)  the price level is held fixed at P1. B)  the interest rate is held fixed at r1. C)  the money supply is changing so as to keep the money market in equilibrium. D)  the expected inflation rate is changing so as to keep the real interest rate constant." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)   the price level is held fixed at P1.
B)   the interest rate is held fixed at r1.
C)   the money supply is changing so as to keep the money market in equilibrium.
D)   the expected inflation rate is changing so as to keep the real interest rate constant.E) A) and B)
F) B) and C)

Question 5

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)   Increases in the money supply shift aggregate demand to the right.
B)   In the long run,increases in the money supply increase prices,but not output.
C)   Recessions are associated with decreases in consumption,investment,and employment.
D)   Government should use fiscal policy to try to stabilize the economy.E) C) and D)
F) A) and B)

Question 6

Using the liquidity-preference model,when the Federal Reserve increases the money supply,

Accepted Answer

A)   the equilibrium interest rate decreases.
B)   the aggregate-demand curve shifts to the left.
C)   the quantity of goods and services demanded is unchanged for a given price level.
D)   the long-run aggregate-supply curve shifts to the right.E) B) and D)
F) A) and D)

Question 7

The most important automatic stabilizer is

Accepted Answer

A)   open-market operations.
B)   the tax system.
C)   unemployment compensation.
D)   welfare benefits.E) A) and B)
F) A) and C)

Question 8

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) All of the above
F) B) and D)

Question 9

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 10

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 11

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)   policy makers harming the economy in the pursuit of self interest.
B)   arbitrary changes in attitudes of household and firms.
C)   mean-spirited economists who believed in the classical dichotomy.
D)   firms' relentless efforts to maximize profits.E) C) and D)
F) A) and D)

Question 12

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) C) and D)

Question 13

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

Question 14

If the price level falls,then

Accepted Answer

A)   the interest rate falls and spending on goods and services falls.
B)   the interest rate falls and spending on goods and services rises.
C)   the interest rate rises and spending on goods and services falls.
D)   the interest rate rises and spending on goods and services rises.E) C) and D)
F) A) and D)

Question 15

The most extreme 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) None of the above
F) A) and B)

Question 16

In the early 1960s,the Kennedy administration made considerable use of

Accepted Answer

A)   fiscal policy to stimulate the economy.
B)   fiscal policy to slow down the economy.
C)   monetary policy to stimulate the economy.
D)   monetary policy to slow down the economy.E) B) and D)
F) A) and B)

Question 17

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   the real-wage effectE) A) and D)
F) None of the above

Question 18

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 19

Assume the MPC is 0.75.Assuming only the multiplier effect matters,a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by $200 billion.
B)   left by $400 billion.
C)   right by $800 billion.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 20

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) All of the above

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

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Correct Answer
verified

If the price level falls,then

Correct Answer
verified

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

Correct Answer
verified

Assume the MPC is 0.75.Assuming only the multiplier effect matters,a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct Answer
verified

In the early 1960s,the Kennedy administration made considerable use of

Correct Answer
verified

The theory of liquidity preference was developed by Irving Fisher.

Correct Answer
verified

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

Correct Answer
verified

The multiplier for changes in government spending is calculated as

Correct Answer
verified

Correct Answer
verified

Which of the following statements generates the greatest amount of disagreement among economists?

Correct Answer
verified

If,at some interest rate,the quantity of money demanded is greater than the quantity of money supplied,people will desire to

Correct Answer
verified

The most extreme 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

Using the liquidity-preference model,when the Federal Reserve increases the money supply,

Correct Answer
verified

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

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

The Fed is concerned about stock market booms because the booms

Correct Answer
verified

Correct Answer
verified

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct Answer
verified

The most important automatic stabilizer is

Correct Answer
verified

Keynes used the term "animal spirits" to refer to

Correct Answer
verified

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

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Correct AnswerverifiedShow Answer

If the price level falls,then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume the MPC is 0.75.Assuming only the multiplier effect matters,a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

In the early 1960s,the Kennedy administration made considerable use of

Correct AnswerverifiedShow Answer

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements generates the greatest amount of disagreement among economists?

Correct AnswerverifiedShow Answer

If,at some interest rate,the quantity of money demanded is greater than the quantity of money supplied,people will desire to

Correct AnswerverifiedShow Answer

The most extreme 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

Using the liquidity-preference model,when the Federal Reserve increases the money supply,

Correct AnswerverifiedShow Answer

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

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

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

The most important automatic stabilizer is

Correct AnswerverifiedShow Answer

Keynes used the term "animal spirits" to refer to

Correct AnswerverifiedShow Answer

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