Question 1

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 2

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)  $216 billion.
B)  $150 billion.
C)  $600 billion.
D)  $480 billion.E) B) and C)
F) A) and B)

Question 3

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

Question 4

The exchange-rate effect is based, in part, on the idea that

Accepted Answer

A)  a decrease in the price level reduces the interest rate.
B)  an increase in the price level causes investors to move some of their funds overseas.
C)  an increase in the price level causes domestic goods to become less expensive relative to foreign goods.
D)  a decrease in the price level reduces spending on net exports.E) B) and C)
F) A) and D)

Question 5

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 ClintonE) A) and D)
F) B) and C)

Question 6

Suppose an economy's marginal propensity to consume (MPC)  is 0.6. Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96.
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.E) B) and D)
F) None of the above

Question 7

If the inflation rate is zero, then

Accepted Answer

A)  both the nominal interest rate and the real interest rate can fall below zero.
B)  the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero.
C)  the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero.
D)  neither the nominal interest rate nor the real interest rate can fall below zero.E) None of the above
F) A) and D)

Question 8

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)  sales of government bonds, which reduces interest rates and causes people to hold less money.
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money.
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money.
D)  sales of government bonds, which reduces interest rates and causes people to hold more money.E) A) and B)
F) A) and C)

Question 9

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

Accepted Answer

A)  buying government bonds, which decreases the supply of money.
B)  selling government bonds, which increases the supply of money.
C)  buying government bonds, which increases the supply of money.
D)  selling government bonds, which decreases the supply of money.E) All of the above
F) B) and D)

Question 10

Supply-side economists focus more than other economists on

Accepted Answer

A)  how fiscal policy affects consumption.
B)  the multiplier effect of fiscal policy.
C)  how fiscal policy affects aggregate supply.
D)  the money supply.E) All of the above
F) A) and D)

Question 11

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 1 to r3? A) a decrease in the price level B) a decrease in the number of firms building new factories and buying new equipment C) an increase in the price level D) an increase in the number of firms building new factories and buying new equipment" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Accepted Answer

A)  a decrease in the price level
B)  a decrease in the number of firms building new factories and buying new equipment
C)  an increase in the price level
D)  an increase in the number of firms building new factories and buying new equipmentE) B) and D)
F) B) and C)

Question 12

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall, In-and-Out Convenience Stores decides to build some new stores.
B)  The exchange rate falls, so French restaurants in Paris buy more Kansas beef.
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen.
D)  With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.E) A) and C)
F) B) and C)

Question 13

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Accepted Answer

A)  aggregate demand falls by 2 x $40 billion.
B)  aggregate demand falls by 11/2 x $40 billion.
C)  aggregate demand falls by 11/9 x $40 billion.
D)  aggregate demand falls by 9/11 x $40 billion.E) B) and C)
F) A) and D)

Question 15

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 16

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Accepted Answer

A)  buy bonds to raise interest rates.
B)  buy bonds to lower interest rates.
C)  sell bonds to raise interest rates.
D)  sell bonds to lower interest rates.E) A) and B)
F) All of the above

Question 17

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Accepted Answer

A) True 
 B)False

Question 18

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause a(n) _____ in interest...

Question 19

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)  neither the level of output nor the level of prices.
B)  the level of output, but not in the level of prices.
C)  the level of prices, but not in the level of output.
D)  the level of output and in the level of prices.E) B) and C)
F) All of the above

Question 20

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Accepted Answer

supply, pu...

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

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Correct AnswerverifiedShow Answer

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Correct AnswerverifiedShow Answer

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

Correct AnswerverifiedShow Answer

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Correct AnswerverifiedShow Answer

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Correct AnswerverifiedShow Answer

The exchange-rate effect is based, in part, on the idea that

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

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct AnswerverifiedShow Answer

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then

Correct AnswerverifiedShow Answer

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Correct Answerverifiedsupply, pu...View AnswerShow Answer

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?"

Correct AnswerverifiedShow Answer

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Correct AnswerverifiedShow Answer

If the inflation rate is zero, then

Correct AnswerverifiedShow Answer

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Correct AnswerverifiedShow Answer

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Correct AnswerverifiedShow Answer

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Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r₁ to r₃?

Correct Answer
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Correct Answer
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According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.

Correct Answer
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supply, pu...
View Answer

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Correct Answer
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Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.

Correct Answer
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Open-market purchases cause a(n) _ in interest rates and a(n) _ in real GDP in the short run.

Correct Answer
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