Question 1

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r...

Question 2

An increase in the MPC

Accepted Answer

A)   increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
B)   increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.
C)   decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
D)   decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

Question 3

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)   the demand-for-money curve is vertical.
B)   the supply-of-money curve is vertical.
C)   the interest rate is measured along the horizontal axis.
D)   the price level is measured along the vertical axis.

Question 4

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)   A stock­market boom increases households' wealth by $500, and there is an operative crowding­out effect.
B)   A stock­market boom increases households' wealth by $575, and there is an operative crowding­out effect.
C)   An economic boom overseas increases the demand for U.S. net exports by $600, and there is no crowding- out effect.
D)   Aggregate demand could increase by $1,500 in response to any of these events.

Question 5

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.

Question 6

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.

Question 7

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

Accepted Answer

increase t...

Question 8

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)   0.2 and the multiplier is 1.25.
B)   0.8 and the multiplier is 5.
C)   0.2 and the multiplier is 1.25
D)   0.8 and the multiplier is 8.

Question 9

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.

Question 10

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.

Question 11

In the short run, open-market purchases

Accepted Answer

A)   increase investment and real GDP, and decrease nominal interest rates.
B)   increase real GDP and nominal interest rates, and decrease investment.
C)   increase investment and nominal interest rates, and decrease real GDP.
D)   decrease investment, nominal interest rates, and real GDP.

Question 12

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.

Question 13

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)   rightward. In an attempt to stabilize the economy, the government could increase expenditures.
B)   rightward. In an attempt to stabilize the economy, the government could decrease expenditures.
C)   leftward. In an attempt to stabilize the economy, the government could increase expenditures.
D)   leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Question 14

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)   attempts to stabilize the economy do not constitute a proper role for government in a democratic society.
B)   these policies affect the economy with a long lag.
C)   these policies affect the economy too quickly and with too much impact.
D)   history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.

Question 15

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.

Question 16

Automatic stabilizers

Accepted Answer

A)   increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)   are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)   are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)   All of the above are correct.

Question 17

Figure 34-8 
-Refer to Figure 34-8. An increase in taxes will

Accepted Answer

A)   shift aggregate demand from AD1 to AD2.
B)   shift aggregate demand from AD1 to AD3.
C)   cause movement from point A to point B along AD1.
D)   have no effect on aggregate demand.

Question 18

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)   liquidity preference.
B)   liquidity trap.
C)   open-market trap.
D)   interest-rate contraction.

Question 19

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

Accepted Answer

A)   demand rightward by more than $100 billion.
B)   demand rightward by less than $100 billion.
C)   supply leftward by more than $100 billion.
D)   supply leftward by less than $100 billion.

Question 20

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Accepted Answer

A)   Dwight D. Eisenhower
B)   John F. Kennedy
C)   Ronald Reagan
D)   Bill Clinton

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

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On the graph that depicts the theory of liquidity preference,

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

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According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

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An increase in the MPC

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The primary argument against active monetary and fiscal policy is that

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Correct AnswerverifiedShow Answer

A reduction in U.S net exports would shift U.S. aggregate demand

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Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

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Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

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

Correct AnswerverifiedShow Answer

Supply-side economists believe that changes in government purchases affect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run, open-market purchases

Correct AnswerverifiedShow Answer

The effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answerverifiedinterest-r...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If it were not for the automatic stabilizers in the U.S. economy,

Correct AnswerverifiedShow Answer

Automatic stabilizers

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

Correct Answerverifiedincrease t...View AnswerShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

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interest-r...
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increase t...
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