Question 1

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A)   wealth effect,exchange-rate effect,interest-rate effect
B)   exchange-rate effect,interest-rate effect,wealth effect
C)   interest-rate effect,wealth effect,exchange-rate effect
D)   interest-rate effect,exchange-rate effect,wealth effectE) A) and B)
F) A) and C)

Question 2

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output,it could

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

Question 3

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 4

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 5

According to liquidity preference theory,a decrease in the price level causes the interest rate to

Accepted Answer

A)   increase,which increases the quantity of goods and services demanded.
B)   increase,which decreases the quantity of goods and services demanded.
C)   decrease,which increases the quantity of goods and services demanded.
D)   decrease,which decreases the quantity of goods and services demanded.E) A) and D)
F) None of the above

Question 6

Figure 34-5.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.
 1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $30 billion.The extent of crowding out,for any particular level of the price level,is A)  $25 billion. B)  $30 billion. C)  $45 billion. D)  $60 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-5.Suppose the multiplier is 3 and the government increases its purchases by $25 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $30 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)   $25 billion.
B)   $30 billion.
C)   $45 billion.
D)   $60 billion.E) C) and D)
F) A) and B)

Question 7

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)   the smaller the MPC and the stronger the influence of income on money demand.
B)   the smaller the MPC and the weaker the influence of income on money demand.
C)   the larger the MPC and the stronger the influence of income on money demand.
D)   the larger the MPC and the weaker the influence of income on money demand.E) A) and B)
F) B) and C)

Question 8

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

Question 9

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.
 2 than it is at Y1. B)  the quantity of money is the same at Y1 as it is at Y2. C)  the price level is higher at r2 than it is at r1. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A)   the real interest rate is higher at Y2 than it is at Y1.
B)   the quantity of money is the same at Y1 as it is at Y2.
C)   the price level is higher at r2 than it is at r1.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 10

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 C)
F) B) and C)

Question 11

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)   interest rate
B)   money supply
C)   quantity of output
D)   price levelE) All of the above
F) B) and D)

Question 12

According to the liquidity preference theory,an increase in the overall price level of 10 percent

Accepted Answer

A)   increases the equilibrium interest rate,which in turn decreases the quantity of goods and services demanded.
B)   decreases the equilibrium interest rate,which in turn increases the quantity of goods and services demanded.
C)   increases the quantity of money supplied by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged.
D)   decreases the quantity of money demanded by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged.E) C) and D)
F) A) and D)

Question 13

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) B) and C)

Question 14

Figure 34-3. 
-Refer to Figure 34-3.What quantity is represented by the vertical line on the left-hand graph?

Accepted Answer

A)   the supply of money
B)   the demand for money
C)   the rate of inflation
D)   the quantity of bonds that was most recently sold or purchased by the Federal ReserveE) All of the above
F) A) and C)

Question 15

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

Question 16

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   the real-wage effectE) A) and B)
F) B) and C)

Question 17

When the price level falls,the interest rate

Accepted Answer

A)   rises.When the money supply falls,the interest rate rises.
B)   rises.When the money supply falls,the interest rate falls.
C)   falls.When the money supply falls,the interest rate rises.
D)   falls.When the money supply falls,the interest rate falls.E) A) and C)
F) B) and C)

Question 18

If the stock market booms,then

Accepted Answer

A)   household spending increases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply.
B)   household spending increases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply.
C)   household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would increase the money supply.
D)   household spending decreases.To offset the effects of this on the price level and real GDP,the Fed would decrease the money supply.E) B) and C)
F) All of the above

Question 19

A tax cut shifts aggregate demand

Accepted Answer

A)   by more than the amount of the tax cut.
B)   by the same amount as the tax cut.
C)   by less than the tax cut.
D)   None of the above is necessarily correct.E) None of the above
F) A) and D)

Question 20

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.
 2 than it is at P1. B)  the quantity of money is higher at Y1 than it is at Y2. C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A)   the quantity of goods and services demanded is higher at P2 than it is at P1.
B)   the quantity of money is higher at Y1 than it is at Y2.
C)   an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
D)   All of the above are correct.E) B) and C)
F) C) and D)

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

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Correct Answer
verified

When the price level falls,the interest rate

Correct Answer
verified

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct Answer
verified

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Correct Answer
verified

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

Correct Answer
verified

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Correct Answer
verified

According to liquidity preference theory,a decrease in the price level causes the interest rate to

Correct Answer
verified

According to the liquidity preference theory,an increase in the overall price level of 10 percent

Correct Answer
verified

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the vertical line on the left-hand graph?

Correct Answer
verified

Correct Answer
verified

If the stock market booms,then

Correct Answer
verified

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output,it could

Correct Answer
verified

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Correct Answer
verified

A tax cut shifts aggregate demand

Correct Answer
verified

According to liquidity preference theory,

Correct Answer
verified

Correct Answer
verified

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

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Correct AnswerverifiedShow Answer

When the price level falls,the interest rate

Correct AnswerverifiedShow Answer

When the Fed announces a target for the federal funds rate,it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct AnswerverifiedShow Answer

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,which variable adjusts to balance the supply and demand for money?

Correct AnswerverifiedShow Answer

According to liquidity preference theory,a decrease in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

According to the liquidity preference theory,an increase in the overall price level of 10 percent

Correct AnswerverifiedShow Answer

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the vertical line on the left-hand graph?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the stock market booms,then

Correct AnswerverifiedShow Answer

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output,it could

Correct AnswerverifiedShow Answer

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

According to liquidity preference theory,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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