Question 1

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

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate, but not an increase in the price level
C)   an increase in the price level, but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) A) and B)
F) All of the above

Question 2

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) None of the above
F) C) and D)

Question 3

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 4

Which particular interest rates)  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) B) and C)
F) A) and B)

Question 5

Which of the following is correct?

Accepted Answer

A)   A higher price level shifts money demand rightward.
B)   When money demand shifts rightward, the interest rate rises.
C)   A higher interest rate reduces the quantity of goods and services demanded.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 6

An increase in the U.S. interest rate

Accepted Answer

A)   raises the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to a depreciation of the U.S. dollar.E) None of the above
F) A) and C)

Question 7

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve...

Question 8

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)   A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded.
B)   A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded.
C)   A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded.
D)   A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.E) A) and D)
F) A) and C)

Question 9

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)   Raise both taxes and expenditures by $80 billion dollars.
B)   Raise both taxes and expenditures by $10 billion dollars.
C)   Reduce both taxes and expenditures by $80 billion dollars.
D)   Reduce both taxes and expenditures by $10 billion dollars.E) C) and D)
F) B) and C)

Question 10

People choose to hold a larger quantity of money if

Accepted Answer

A)   the interest rate rises, which causes the opportunity cost of holding money to rise.
B)   the interest rate falls, which causes the opportunity cost of holding money to rise.
C)   the interest rate rises, which causes the opportunity cost of holding money to fall.
D)   the interest rate falls, which causes the opportunity cost of holding money to fall.E) B) and D)
F) None of the above

Question 11

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 12

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Accepted Answer

A)   a decrease in taxes.
B)   an increase in government spending.
C)   an increase in the price level.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 13

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Accepted Answer

A)   the quantity of output
B)   the amount of crowding out
C)   the interest rate
D)   the price levelE) None of the above
F) C) and D)

Question 14

The interest-rate effect

Accepted Answer

A)   depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.
B)   depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded.
C)   is responsible for the downward slope of the money-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) All of the above
F) B) and C)

Question 15

Keynes argued that

Accepted Answer

A)   irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.
B)   irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply.
C)   changes in business and consumer expectations generally stabilize the economy.
D)   All of the above are correct.E) B) and D)
F) A) and D)

Question 16

Shifts in aggregate demand affect the price level in

Accepted Answer

A)   the short run but not in the long run.
B)   the long run but not in the short run.
C)   both the short and long run.
D)   neither the short nor long run.E) All of the above
F) A) and B)

Question 17

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

Question 18

In the graph of the money market, the money supply curve is

Accepted Answer

A)   vertical. It shifts rightward if the Fed buys bonds.
B)   vertical. It shifts rightward if the Fed sells bonds.
C)   upward sloping. It shifts rightward if the Fed buys bonds.
D)   upward sloping. It shifts rightward if the Fed sells bonds.E) A) and B)
F) A) and C)

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

Question 20

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)   the interest rate falls because money demand shifts right.
B)   the interest rate falls because money demand shifts left.
C)   the interest rate rises because money supply shifts right.
D)   the interest rate rises because money supply shifts left.E) A) and C)
F) A) and D)

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy affects the economy

Correct Answer
verified

An increase in the U.S. interest rate

Correct Answer
verified

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
verified
price leve...
View Answer

People choose to hold a larger quantity of money if

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

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Correct Answer
verified

According to liquidity preference theory, if the price level decreases, then

Correct Answer
verified

Which of the following properly describes the interest-rate effect?

Correct Answer
verified

Keynes argued that

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Correct Answer
verified

In the graph of the money market, the money supply curve is

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct Answer
verified

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

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

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

Correct Answer
verified

Shifts in aggregate demand affect the price level in

Correct Answer
verified

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy affects the economy

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Correct Answerverifiedprice leve...View AnswerShow Answer

People choose to hold a larger quantity of money if

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

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level decreases, then

Correct AnswerverifiedShow Answer

Which of the following properly describes the interest-rate effect?

Correct AnswerverifiedShow Answer

Keynes argued that

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Correct AnswerverifiedShow Answer

In the graph of the money market, the money supply curve is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
verified
price leve...
View Answer

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