Question 1

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Accepted Answer

A)   rises and the aggregate quantity of goods demanded rises.
B)   rises and the aggregate quantity of goods demanded falls.
C)   falls and the aggregate quantity of goods demanded rises.
D)   falls and the aggregate quantity of goods demanded falls.E) B) and C)
F) None of the above

Question 2

In the long run,changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) B) and C)
F) All of the above

Question 3

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 4

Scenario 24-1.Take the following information as given for a small,imaginary economy:
 
-Refer to Scenario 24-1.For this economy,an initial increase of $500 in net exports translates into a

Accepted Answer

A)   $2,000 increase in aggregate demand when the crowding-out effect is taken into account.
B)   $2,500 increase in aggregate demand when the crowding-out effect is taken into account.
C)   $2,000 increase in aggregate demand in the absence of the crowding-out effect.
D)   $2,500 increase in aggregate demand in the absence of the crowding-out effect.E) A) and C)
F) B) and C)

Question 5

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

Accepted Answer

A)   $300 billion and $180 billion
B)   $300 billion and $300 billion
C)   $500 billion and $300 billion
D)   $500 billion and $500 billionE) B) and C)
F) A) and B)

Question 6

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 7

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

Question 8

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

Question 9

Shifts in aggregate demand affect the price level in

Accepted Answer

A)   the short run but not in the long run.
B)   the long run but not in the short run.
C)   both the short and long run.
D)   neither the short nor long run.E) All of the above
F) B) and C)

Question 10

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

Question 11

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)   open-market rate.
B)   discount rate.
C)   preference rate.
D)   None of the above are correct.E) A) and B)
F) B) and D)

Question 12

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) B) and D)
F) A) and C)

Question 14

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Accepted Answer

A) True 
 B)False

Question 15

Figure 24-2.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 24-2.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) C) and D)
F) B) and D)

Question 16

If the Federal Reserve increases the money supply,then initially there is a

Accepted Answer

A)   shortage in the money market,so people will want to sell bonds.
B)   shortage in the money market,so people will want to buy bonds.
C)   surplus in the money market,so people will want to sell bonds.
D)   surplus in the money market,so people will want to buy bonds.E) C) and D)
F) B) and D)

Question 17

People will want to hold more money if the price level

Accepted Answer

A)   or if the interest rate increases.
B)   or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) A) and D)
F) B) and D)

Question 18

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither crowding out nor the investment acceleratorE) C) and D)
F) A) and B)

Question 19

The term crowding-out effect refers to

Accepted Answer

A)   the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.
B)   the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.
C)   the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
D)   the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.E) B) and D)
F) B) and C)

Question 20

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

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Correct Answer
verified

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

If the Federal Reserve increases the money supply,then initially there is a

Correct Answer
verified

Permanent tax cuts shift the AD curve

Correct Answer
verified

If the stock market crashes,then

Correct Answer
verified

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

Correct Answer
verified

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct Answer
verified

In the long run,changes in the money supply affect

Correct Answer
verified

Shifts in aggregate demand affect the price level in

Correct Answer
verified

Correct Answer
verified

Scenario 24-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 24-1.For this economy,an initial increase of $500 in net exports translates into a

Correct Answer
verified

People will want to hold more money if the price level

Correct Answer
verified

The term crowding-out effect refers to

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

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

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

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct Answer
verified

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct Answer
verified

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Correct AnswerverifiedShow Answer

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply,then initially there is a

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

If the stock market crashes,then

Correct AnswerverifiedShow Answer

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

Correct AnswerverifiedShow Answer

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct AnswerverifiedShow Answer

In the long run,changes in the money supply affect

Correct AnswerverifiedShow Answer

Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Scenario 24-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 24-1.For this economy,an initial increase of $500 in net exports translates into a

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

The term crowding-out effect refers to

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

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

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

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

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