Question 1

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 D)
F) A) and C)

Question 2

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) C) and D)

Question 3

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 4

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

The answer of The idea that aggregate demand fluctuates due...

Question 5

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 6

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) A) and D)
F) All of the above

Question 7

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by about $30.77 billion.
B)  left by about $57.1 billion.
C)  right by about $57.1 billion.
D)  right by about $30.77 billion.E) All of the above
F) C) and D)

Question 8

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu...

Question 9

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Accepted Answer

A)  increases by 2 percentage points.
B)  increases, but by less than 2 percentage points.
C)  decreases, but by less than 2 percentage points.
D)  decreases by 2 percentage points.E) C) and D)
F) A) and C)

Question 10

​Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

Accepted Answer

A) True 
 B)False

Question 11

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)  zero.
B)  likely smaller than if the cut had been permanent.
C)  likely about the same as if the cut had been permanent.
D)  likely larger than if the cut had been permanent.E) B) and D)
F) B) and C)

Question 12

The Federal Open Market Committee is ​

Accepted Answer

A)  ​the group at the Federal Reserve that sets monetary policy.
B)  ​in charge of tax collection.
C)  ​the group that sets the amount of government spending.
D)  ​the group that reviews income assistance programs.E) C) and D)
F) A) and B)

Question 13

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than do temporary tax cuts.
B)  not as far to the right as do temporary tax cuts.
C)  farther to the left than do temporary tax cuts.
D)  not as far to the left as do temporary tax cuts.E) B) and D)
F) A) and B)

Question 14

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)  level of real output only.
B)  interest rate only.
C)  level of real output and by the interest rate.
D)  Federal Reserve.E) A) and B)
F) B) and C)

Question 15

If there is excess demand for money, then people will

Accepted Answer

A)  deposit more money into interest-bearing accounts, and the interest rate will fall.
B)  deposit more money into interest-bearing accounts, and the interest rate will rise.
C)  withdraw money from interest-bearing accounts, and the interest rate will fall.
D)  withdraw money from interest-bearing accounts, and the interest rate will rise.E) A) and D)
F) B) and C)

Question 16

Figure 34-14 
-Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-14 
-Refer to Figure 34-14. Initial...

Question 17

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

Question 18

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 19

ARRA involved substantial​

Accepted Answer

A)  ​increases in government spending.
B)  ​decreases in government spending.
C)  ​increases in the money supply.
D)  ​decreases in the money supply.E) C) and D)
F) All of the above

Question 20

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) A) and B)

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

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Correct AnswerverifiedShow Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct AnswerverifiedIf the interest rate is above equilibriu...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Correct AnswerverifiedShow Answer

ARRA involved substantial​

Correct AnswerverifiedShow Answer

If people decide to hold less money, then

Correct AnswerverifiedShow Answer

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct AnswerverifiedShow Answer

​Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

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

The Federal Open Market Committee is ​

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

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

Most economists believe that a cut in tax rates

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

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

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 expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

If there is excess demand for money, then people will

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

Correct Answer
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Correct Answer
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If the interest rate is above equilibriu...
View Answer

Correct Answer
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The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified

ARRA involved substantial

Correct Answer
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Correct Answer
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Correct Answer
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Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

Correct Answer
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Correct Answer
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The Federal Open Market Committee is

Correct Answer
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