Question 1

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)   the interest rate to fall, so aggregate demand shifts right.
B)   the interest rate to fall, so aggregate demand shifts left.
C)   the interest rate to rise, so aggregate demand shifts right.
D)   the interest rate to rise, so aggregate demand shifts left.E) All of the above
F) B) and C)

Question 2

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)   An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants.
B)   An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants.
C)   An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases.
D)   An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.E) C) and D)
F) B) and D)

Question 3

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Accepted Answer

A)   right by more than $100 billion.
B)   right by $100 billion.
C)   left by more than $100 billion.
D)   left by $100 billion.E) All of the above
F) B) and D)

Question 4

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 5

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.
C)   changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate.
D)   our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.E) A) and C)
F) All of the above

Question 6

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 7

The Employment Act of 1946 states that

Accepted Answer

A)   the Fed should use monetary policy only to control the rate of inflation.
B)   the government should promote full employment and production.
C)   the government should periodically increase the minimum wage and unemployment insurance benefits.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 8

Most economists believe that a cut in tax rates

Accepted Answer

A)   would generally increase government tax revenue.
B)   would have no effect on aggregate demand.
C)   has a relatively small effect on the aggregate-supply curve.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 9

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)   U.S. citizens decide to hold more foreign bonds.
B)   People choose to hold more currency.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 10

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

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) B) and C)
F) A) and D)

Question 11

Unemployment insurance benefits are an example of .

Accepted Answer

automatic ...

Question 12

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)   used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally.
B)   took the unusual step of using open-market operations to purchase mortgages and corporate debt.
C)   explicitly set its target rate of inflation at zero.
D)   explicitly set its target rate of inflation well above zero.E) A) and B)
F) A) and C)

Question 13

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)   firms may believe the relative price of their output has risen.
B)   real wealth declines.
C)   the interest rate increases.
D)   the exchange rate increases.E) A) and B)
F) A) and C)

Question 14

Figure 34-6. 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 34-6. Suppose the multiplier is 5 and the government increases its purchases by $15 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. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)   $75 billion.
B)   $40 billion.
C)   $30 billion.
D)   $20 billion.E) B) and D)
F) C) and D)

Question 15

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)   $283 billion and $254.7 billion
B)   $283 billion and $283 billion
C)   $300 billion and $270 billion
D)   $300 billion and $300 billionE) A) and D)
F) None of the above

Question 16

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Accepted Answer

A)   As the money supply increases, the interest rate falls, so spending rises.
B)   As the money supply increases, the interest rate rises, so spending falls.
C)   As the price level increases, the interest rate falls, so spending rises.
D)   As the price level increases, the interest rate rises, so spending falls.E) B) and D)
F) None of the above

Question 17

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Accepted Answer

A)   increases by more than the change in the nominal interest rate.
B)   increases by the change in the nominal interest rate.
C)   decreases by the change in the nominal interest rate.
D)   decreases by more than the change in the nominal interest rate.E) All of the above
F) A) and C)

Question 18

To reduce aggregate demand, the government may reduce or increase .

Accepted Answer

government...

Question 19

If the stock market crashes, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by increasing the money supply.
B)   aggregate demand increases, which the Fed could offset by decreasing the money supply.
C)   aggregate demand decreases, which the Fed could offset by increasing the money supply.
D)   aggregate demand decreases, which the Fed could offset by decreasing the money supply.E) None of the above
F) B) and D)

Question 20

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

increase t...

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

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Correct Answer
verified

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct Answer
verified

Correct Answer
verified

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

Most economists believe that a cut in tax rates

Correct Answer
verified

The Employment Act of 1946 states that

Correct Answer
verified

During the economic downturn of 2008-2009, the Federal Reserve

Correct Answer
verified

Correct Answer
verified

To reduce aggregate demand, the government may reduce or increase .

Correct Answer
verified
government...
View Answer

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Correct Answer
verified

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Correct Answer
verified
increase t...
View Answer

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct Answer
verified

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct Answer
verified

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

Correct Answer
verified

Unemployment insurance benefits are an example of .

Correct Answer
verified
automatic ...
View Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified

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

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

Most economists believe that a cut in tax rates

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

During the economic downturn of 2008-2009, the Federal Reserve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To reduce aggregate demand, the government may reduce or increase .

Correct Answerverifiedgovernment...View AnswerShow Answer

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Correct AnswerverifiedShow Answer

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifiedincrease t...View AnswerShow Answer

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct AnswerverifiedShow Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Unemployment insurance benefits are an example of .

Correct Answerverifiedautomatic ...View AnswerShow Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Correct AnswerverifiedShow Answer

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government...
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increase t...
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automatic ...
View Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified