Question 1

Figure 21-2.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 21-2.What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)   the quantity of money
B)   the rate of inflation
C)   real output
D)   nominal outputE) A) and B)
F) All of the above

Question 2

For the U.S.economy,money holdings are a

Accepted Answer

A)   large part of household wealth,and so the interest-rate effect is large.
B)   large part of household wealth,and so the wealth effect is large.
C)   small part of household wealth,and so the interest-rate effect is small.
D)   small part of household wealth,and so the wealth effect is small.E) A) and C)
F) B) and C)

Question 3

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Accepted Answer

A)   shifts rightward by $62.5 billion.
B)   shifts rightward by $50.0 billion.
C)   shifts rightward by $32.5 billion.
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 4

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)   the money supply of a given increase in government purchases.
B)   tax revenues of a given increase in government purchases.
C)   investment of a given increase in interest rates.
D)   aggregate demand of a given increase in government purchases.E) A) and B)
F) B) and C)

Question 5

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. 3 to r1? A)  a decrease in the price level B)  a decrease in the number of firms building new factories and buying new equipment C)  an increase in the price level D)  an increase in the number of firms building new factories and buying new equipment" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-4.Which of the following events could explain a decrease in the equilibrium interest rate from r3 to r1?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the number of firms building new factories and buying new equipment
C)   an increase in the price level
D)   an increase in the number of firms building new factories and buying new equipmentE) B) and C)
F) A) and B)

Question 6

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

Question 7

When the interest rate decreases,the opportunity cost of holding money

Accepted Answer

A)   increases,so the quantity of money demanded increases.
B)   increases,so the quantity of money demanded decreases.
C)   decreases,so the quantity of money demanded increases.
D)   decreases,so the quantity of money demanded decreases.E) B) and C)
F) A) and C)

Question 8

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 9

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 10

Figure 21-3. 
-Refer to Figure 21-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Accepted Answer

A)   1,2,3,4
B)   1,4,3,2
C)   3,4,2,1
D)   3,2,1,4E) All of the above
F) B) and C)

Question 11

Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could

Accepted Answer

A)   increase the money supply.This increase would also move the price level closer to its value before the rise in stock prices.
B)   increase the money supply.However,this increase would move the price level farther from its value before the rise in stock prices.
C)   decrease the money supply.This decrease would also move the price level closer to its value before the rise in stock prices.
D)   decrease the money supply.However,this decrease would move the price level farther from its value before the rise in stock prices.E) A) and B)
F) C) and D)

Question 12

Figure 21-7. 1 to AD2,the economy will stay at point b in both the short run and long run. C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-7.Which of the following is correct?

Accepted Answer

A)   A wave of optimism could move the economy from point a to point b
B)   If aggregate demand moves from AD1 to AD2,the economy will stay at point b in both the short run and long run.
C)   It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Question 13

If people decide to hold less money,then

Accepted Answer

A)   money demand decreases,there is an excess supply of money,and interest rates rise.
B)   money demand decreases,there is an excess supply of money,and interest rates fall.
C)   money demand increases,there is an excess demand for money,and interest rates fall.
D)   money demand increases,there is an excess demand for money,and interest rates rise.E) None of the above
F) B) and C)

Question 14

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

Question 15

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of determining monetary policy.
C)   the time it takes for changes in government spending to affect the interest rate.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 16

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. 1.Which of the following events would cause the equilibrium interest rate to increase? A)  The Federal Reserve increases the money supply. B)  Money demand increases. C)  The price level decreases. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand increases.
C)   The price level decreases.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 17

The marginal propensity to consume (MPC) is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) B) and C)
F) All of the above

Question 18

In the short run,a decrease 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) All of the above
F) None of the above

Question 19

If the multiplier is 2.5,then the MPC is

Accepted Answer

A)   0.2.
B)   0.6.
C)   0.75.
D)   1.00.E) None of the above
F) A) and B)

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

Correct Answer
verified

Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could

Correct Answer
verified

In the short run,a decrease in the money supply causes interest rates to

Correct Answer
verified

The lag problem associated with monetary policy is due mostly to

Correct Answer
verified

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct Answer
verified

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Which of the following events could explain a decrease in the equilibrium interest rate from r₃ to r₁?

Correct Answer
verified

The multiplier effect is exemplified by the multiplied impact on

Correct Answer
verified

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

Correct Answer
verified

If people decide to hold less money,then

Correct Answer
verified

The marginal propensity to consume (MPC) is defined as the fraction of

Correct Answer
verified

Figure 21-3. -Refer to Figure 21-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

Figure 21-7. -Refer to Figure 21-7.Which of the following is correct?

Correct Answer
verified

For the U.S.economy,money holdings are a

Correct Answer
verified

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

During periods of expansion,automatic stabilizers cause government expenditures

Correct Answer
verified

Correct Answer
verified

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Correct Answer
verified

When the interest rate decreases,the opportunity cost of holding money

Correct Answer
verified

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct Answer
verified

If the multiplier is 2.5,then the MPC is

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

In the short run,a decrease in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

The lag problem associated with monetary policy is due mostly to

Correct AnswerverifiedShow Answer

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct AnswerverifiedShow Answer

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Which of the following events could explain a decrease in the equilibrium interest rate from r3 to r1?

Correct AnswerverifiedShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If people decide to hold less money,then

Correct AnswerverifiedShow Answer

The marginal propensity to consume (MPC) is defined as the fraction of

Correct AnswerverifiedShow Answer

Figure 21-3. -Refer to Figure 21-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

Figure 21-7. -Refer to Figure 21-7.Which of the following is correct?

Correct AnswerverifiedShow Answer

For the U.S.economy,money holdings are a

Correct AnswerverifiedShow Answer

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

Correct AnswerverifiedShow Answer

During periods of expansion,automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Correct AnswerverifiedShow Answer

When the interest rate decreases,the opportunity cost of holding money

Correct AnswerverifiedShow Answer

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct AnswerverifiedShow Answer

If the multiplier is 2.5,then the MPC is

Correct AnswerverifiedShow Answer

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Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Which of the following events could explain a decrease in the equilibrium interest rate from r₃ to r₁?

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Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?

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