Question 1

If the inflation rate is zero,then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 2

If the MPC = 3/5,then the government purchases multiplier is

Accepted Answer

A)   5/3.
B)   5/2.
C)   5
D)   15E) C) and D)
F) B) and D)

Question 3

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

Question 4

Figure 34-3. 1 to Y2? A)  consumption B)  investment C)  net exports D)  government spending" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) C) and D)
F) A) and D)

Question 5

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)   both liquidity preference theory and classical theory.
B)   neither liquidity preference theory nor classical theory.
C)   liquidity preference theory,but not classical theory.
D)   classical theory,but not liquidity preference theory.E) B) and D)
F) B) and C)

Question 6

The Employment Act of 1946

Accepted Answer

A)   implies that the government should avoid being a cause of economic fluctuations.
B)   implies that the government should respond to changes in the private economy to stabilize aggregate demand.
C)   reflected the ideas promoted in Keynes's influential book,The General Theory of Employment,Interest,and Money.
D)   All of the above are correctE) B) and C)
F) A) and C)

Question 7

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates increase the quantity of money demanded.
B)   depends on the idea that increases in interest rates increase the quantity of money supplied.
C)   is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.
D)   is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.E) B) and D)
F) A) and C)

Question 8

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) A) and B)
F) B) and C)

Question 9

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)   an increase in government expenditures
B)   an increase in net exports
C)   an increase in investment spending
D)   All of the above are correct.E) All of the above
F) None of the above

Question 10

Fiscal policy affects the economy

Accepted Answer

A)   only in the short run.
B)   only in the long run.
C)   in both the short and long run.
D)   in neither the short nor the long run.E) None of the above
F) A) and B)

Question 11

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)   multiplier effect.
B)   crowding-out effect.
C)   accelerator effect.
D)   Ricardian equivalence effect.E) None of the above
F) All of the above

Question 13

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Accepted Answer

A)   Your aunt puts more money in her savings account.
B)   Foreign citizens decide to buy fewer U.S.bonds.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 14

Which of the following events would shift money demand to the right?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) A) and B)
F) A) and D)

Question 15

According to liquidity preference theory,the money-supply curve is

Accepted Answer

A)   upward sloping.
B)   downward sloping.
C)   vertical.
D)   horizontal.E) A) and B)
F) A) and C)

Question 16

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

Question 17

Scenario 34-1.Take the following information as given for a small,imaginary economy:
• When income is $10,000,consumption spending is $6,500.
• When income is $11,000,consumption spending is $7,300.
-Refer to Scenario 34-1.The marginal propensity to consume for this economy is

Accepted Answer

A)   0.650.
B)   0.664.
C)   0.650 or 0.664,depending on whether income is $10,000 or $11,000.
D)   0.800.E) A) and B)
F) B) and D)

Question 18

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

Question 19

Liquidity preference theory is most relevant to the

Accepted Answer

A)   short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)   short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)   long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)   long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) A) and B)
F) None of the above

Question 20

If the stock market crashes,then

Accepted Answer

A)   aggregate demand increases,which the Fed could offset by increasing the money supply.
B)   aggregate demand increases,which the Fed could offset by decreasing the money supply.
C)   aggregate demand decreases,which the Fed could offset by increasing the money supply.
D)   aggregate demand decreases,which the Fed could offset by decreasing the money supply.E) C) and D)
F) B) and C)

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

Fiscal policy affects the economy

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If the stock market crashes,then

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

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

Correct AnswerverifiedShow Answer

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

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Which of the following events would shift money demand to the right?

Correct AnswerverifiedShow Answer

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

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According to liquidity preference theory,the money-supply curve is

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Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct AnswerverifiedShow Answer

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

If the MPC = 3/5,then the government purchases multiplier is

Correct AnswerverifiedShow Answer

If the inflation rate is zero,then the nominal and real interest rate are the same.

Correct AnswerverifiedShow Answer

The Employment Act of 1946

Correct AnswerverifiedShow Answer

Scenario 34-1.Take the following information as given for a small,imaginary economy: • When income is $10,000,consumption spending is $6,500. • When income is $11,000,consumption spending is $7,300. -Refer to Scenario 34-1.The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

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Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

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