Question 1

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

Accepted Answer

A)   money demand curve rightward, so the interest rate increases.
B)   money demand curve rightward, so the interest rate decreases.
C)   money demand curve leftward, so the interest rate decreases.
D)   money demand curve leftward, so the interest rate increases.E) A) and D)
F) B) and D)

Question 2

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.
 
-Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

Accepted Answer

A)   represent an action taken by the Federal Reserve.
B)   shift the AD curve to the left.
C)   create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 3

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   1/1+MP
C)  .
B)   1 - MP
C)  /MPC.
C)   1/MPC.
D)   1/1 - MP
C)  .E) A) and B)
F) None of the above

Question 4

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 5

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Accepted Answer

A)   $60.25.
B)   $60.75.
C)   $61.33.
D)   $64.00.E) All of the above
F) None of the above

Question 6

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 7

In the short run, an increase in the money supply causes interest rates to

Accepted Answer

A)   increase, and aggregate demand to shift right.
B)   increase, and aggregate demand to shift left.
C)   decrease, and aggregate demand to shift right.
D)   decrease, and aggregate demand to shift left.E) A) and D)
F) A) and C)

Question 8

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Accepted Answer

A)   purchase government bonds, which will increase the money supply.
B)   purchase government bonds, which will reduce the money supply.
C)   sell government bonds, which will increase the money supply.
D)   sell government bonds, which will reduce the money supply.E) B) and D)
F) All of the above

Question 9

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)   Congress passed a law requiring them to do so.
B)   the President requested them to do so.
C)   the money supply is hard to measure with sufficient precision.
D)   changes in the interest rate change aggregate demand, but changes in the money supply do not.E) None of the above
F) B) and C)

Question 10

Most economists believe that fiscal policy

Accepted Answer

A)   only affects aggregate demand and not aggregate supply.
B)   primarily affects aggregate demand.
C)   primarily effects aggregate supply.
D)   only affects aggregate supply and not aggregate demand.E) B) and C)
F) A) and D)

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

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct Answer
verified

Correct Answer
verified

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Correct Answer
verified

The multiplier for changes in government spending is calculated as

Correct Answer
verified

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct Answer
verified

An essential piece of the liquidity preference theory is the demand for money.

Correct Answer
verified

In the short run, an increase in the money supply causes interest rates to

Correct Answer
verified

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

Correct Answer
verified

During recessions, the government tends to run a budget deficit.

Correct Answer
verified

Most economists believe that fiscal policy

Correct Answer
verified

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

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct AnswerverifiedShow Answer

An essential piece of the liquidity preference theory is the demand for money.

Correct AnswerverifiedShow Answer

In the short run, an increase in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During recessions, the government tends to run a budget deficit.

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified