Question 1

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Accepted Answer

A)   increase the money supply by buying bonds.
B)   increase the money supply by selling bonds.
C)   decrease the money supply by buying bonds.
D)   increase the money supply by selling bondsE) A) and B)
F) B) and C)

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. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)   the nominal interest rate
B)   the quantity of money demanded
C)   investment
D)   the expected rate of inflationE) A) and D)
F) C) and D)

Question 3

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

Question 4

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Accepted Answer

A)   purchasing government bonds. This action will reduce investment and shift aggregate demand to the right.
B)   purchasing government bonds. This action will increase investment and shift aggregate demand to the right.
C)   selling government bonds. This action will reduce investment and shift aggregate demand to the left.
D)   selling government bonds. This action will increase investment and shift aggregate demand to the left.E) B) and C)
F) A) and B)

Question 5

Consider the following sequence of events:
Price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑
⇒ quantity of goods and services demanded ↓
Τhis sequence explains why the

Accepted Answer

A)   money-supply curve is vertical.
B)   aggregate-demand curve shifts leftward in response to a monetary injection.
C)   aggregate-demand curve shifts rightward in response to a monetary injection.
D)   aggregate-demand curve slopes downward.E) B) and C)
F) B) and D)

Question 6

If the stock market booms, then

Accepted Answer

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

Question 7

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

Accepted Answer

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

Question 8

Other things equal, in the short run a lower 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) B) and D)

Question 9

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Accepted Answer

A)   relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B)   relatively important in the United States because consumption spending is a large part of GDP.
C)   relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D)   relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.E) B) and C)
F) A) and B)

Question 10

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 11

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)   the demand-for-money curve is vertical.
B)   the supply-of-money curve is vertical.
C)   the interest rate is measured along the horizontal axis.
D)   the price level is measured along the vertical axis.E) A) and B)
F) A) and C)

Question 12

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)   and taxes to fall.
B)   and taxes to rise.
C)   to rise and taxes to fall.
D)   to fall and taxes to rise.E) C) and D)
F) A) and B)

Question 13

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th...

Question 14

According to liquidity preference theory,

Accepted Answer

A)   an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.
B)   an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward.
C)   an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward.
D)   an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.E) B) and D)
F) All of the above

Question 15

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)   An increase in the price level decreases the interest rate.
B)   An increase in the price level increases the interest rate.
C)   An increase in the money supply decreases the interest rate.
D)   An increase in the money supply increases the interest rate.E) None of the above
F) A) and C)

Question 16

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 17

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Accepted Answer

supply, fa...

Question 18

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

Question 19

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)   an increase in government expenditures or a decrease in the price level
B)   a decrease in government expenditures or an increase in the price level
C)   an increase in government expenditures, but not a change in the price level
D)   a decrease in the price level, but not an increase in government expendituresE) All of the above
F) None of the above

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

If the stock market booms, then

Correct Answer
verified

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Correct Answer
verified

According to liquidity preference theory,

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

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 MD2 to MD1 is consistent with which of the following sets of events?

Correct Answer
verified

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

During periods of expansion, automatic stabilizers cause government expenditures

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

Which of the following events shifts aggregate demand rightward?

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

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct Answer
verified

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct Answer
verified

An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

Correct Answer
verified
supply, fa...
View Answer

Consider the following sequence of events: Price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ Τhis sequence explains why the

Correct Answer
verified

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Correct Answer
verified

On the graph that depicts the theory of liquidity preference,

Correct Answer
verified

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Correct Answer
verified

Correct Answer
verified

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

If the stock market booms, then

Correct AnswerverifiedShow Answer

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Correct AnswerverifiedShow Answer

According to liquidity preference theory,

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

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 MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

During periods of expansion, automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct AnswerverifiedAs consumers become pessimistic about th...View AnswerShow Answer

Which of the following events shifts aggregate demand rightward?

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

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct AnswerverifiedShow Answer

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct AnswerverifiedShow Answer

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

Consider the following sequence of events: Price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ Τhis sequence explains why the

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Correct Answer
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As consumers become pessimistic about th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

Correct Answer
verified
supply, fa...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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