Question 1

When the Fed buys government bonds, the reserves of the banking system

Accepted Answer

A)  increase, so the money supply increases.
B)  increase, so the money supply decreases.
C)  decrease, so the money supply increases.
D)  decrease, so the money supply decreases.E) A) and D)
F) A) and B)

Question 2

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 3

As the interest rate falls to equilibrium in the market for money,

Accepted Answer

A)  the quantity of money demanded falls, which would reduce a shortage of money.
B)  the quantity of money demanded falls, which would reduce a surplus of money.
C)  the quantity of money demanded rises, which would reduce a shortage of money.
D)  the quantity of money demanded rises, which would reduce a surplus of money.E) A) and D)
F) All of the above

Question 4

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Accepted Answer

A) True 
 B)False

Question 5

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Accepted Answer

A)  Your aunt puts more money in her savings account.
B)  Foreign citizens decide to buy fewer U.S.bonds.
C)  You decide to purchase a new oven for your cookie factory.
D)  More people decide to purchase a home using a mortgage loan.E) A) and B)
F) A) and C)

Question 6

Figure 34-1  ​
-Refer to Figure 34-1. There is an excess supply for money at an interest rate of

Accepted Answer

A)  4 percent.
B)  2 percent.
C)  3 percent.
D)  5 percent.E) None of the above
F) A) and B)

Question 7

Figure 34-8  ​
-Refer to Figure 34-8. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Accepted Answer

Question 8

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 9

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

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

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Accepted Answer

The answer of To stabilize output, the Federal Reserve will...

Question 12

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with _____.

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 13

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 14

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou...

Question 15

If expected inflation is constant and the nominal interest rate increases by 4 percentage points, then the real interest rate

Accepted Answer

A)  decreases by 4 percentage points.
B)  decreases, but by more than 4 percentage points.
C)  increases, but by more than 4 percentage points.
D)  increases by 4 percentage points.E) B) and C)
F) A) and B)

Question 16

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets.
B)  must be described in terms of money-supply targets.
C)  can be described either in terms of the money supply or in terms of the interest rate.
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.E) C) and D)
F) A) and D)

Question 17

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve...

Question 18

An increase in the money supply will

Accepted Answer

A)  increase interest rates, decreasing investment and aggregate demand.
B)  reduce interest rates, increasing investment and aggregate demand.
C)  reduce interest rates, decreasing investment and increasing aggregate demand.
D)  increase interest rates, increasing investment and aggregate demand.E) B) and C)
F) A) and D)

Question 19

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Accepted Answer

monetary, ...

Question 20

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will _____.

Accepted Answer

decrease t...

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

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

Correct Answerverifieddemand, ou...View AnswerShow Answer

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

An increase in the money supply will

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will _____.

Correct Answerverifieddecrease t...View AnswerShow Answer

When the Fed buys government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

During recessions, the government tends to run a budget deficit.

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

As the interest rate falls to equilibrium in the market for money,

Correct AnswerverifiedShow Answer

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Correct AnswerverifiedShow Answer

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with _____.

Correct AnswerverifiedShow Answer

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Correct AnswerverifiedShow Answer

If expected inflation is constant and the nominal interest rate increases by 4 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

Figure 34-8 ​ -Refer to Figure 34-8. Households' desired money holdings are given by MD1. If the current rate of interest is r3, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

Correct AnswerverifiedShow Answer

Figure 34-1 ​ -Refer to Figure 34-1. There is an excess supply for money at an interest rate of

Correct AnswerverifiedShow Answer

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Correct Answerverifiedprice leve...View AnswerShow 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

The goal of stabilization policy is to stabilize aggregate ___. As a result, stabilization policy will also stabilize _ and ___.

Correct Answer
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demand, ou...
View Answer

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decrease t...
View Answer

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Correct Answer
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Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.

Correct Answer
verified
monetary, ...
View Answer

Correct Answer
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Correct Answer
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If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

Correct Answer
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Correct Answer
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Figure 34-8 -Refer to Figure 34-8. Households' desired money holdings are given by MD₁. If the current rate of interest is r₃, then there is excess ___. Households will _ interest-earning assets, which causes the interest rate to ___.

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1. There is an excess supply for money at an interest rate of

Correct Answer
verified

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
verified
price leve...
View 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 Answer
verified