Question 1

If the Fed conducts open-market purchases,the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) All of the above
F) None of the above

Question 2

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.E) A) and C)
F) C) and D)

Question 3

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Accepted Answer

A)   The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.
B)   The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes.
C)   The wealth effect is relatively large because money holdings are a significant portion of most households' wealth.
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 4

When the Fed lowers the growth rate of the money supply,it must take into account

Accepted Answer

A)   only the short-run effect on production.
B)   only the short-run effects on inflation and production.
C)   only the long-run effect on inflation.
D)   the long-run effect on inflation as well as the short-run effect on production.E) C) and D)
F) None of the above

Question 5

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 6

Figure 34-2.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.
 1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct? A)  When r = r2,nominal output is higher than it is when r = r1. B)  When r = r2,real output is higher than it is when r = r1. C)  When r = r2,the expected rate of inflation is higher than it is when r = r1. D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.Assume the money market is always in equilibrium,and suppose r1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct?

Accepted Answer

A)   When r = r2,nominal output is higher than it is when r = r1.
B)   When r = r2,real output is higher than it is when r = r1.
C)   When r = r2,the expected rate of inflation is higher than it is when r = r1.
D)   If the velocity of money is 4 when r = r2,then the quantity of money is $3,000.E) C) and D)
F) None of the above

Question 7

According to classical macroeconomic theory,

Accepted Answer

A)   the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)   for any given level of output,the interest rate adjusts to balance the supply of,and demand for,money.
C)   output is determined by the supplies of capital and labor and the available production technology.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 8

According to liquidity preference theory,an increase 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.E) A) and B)
F) C) and D)

Question 9

When there is an increase in government expenditures,which of the following raises investment 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 the investment accelerator or crowding outE) A) and C)
F) All of the above

Question 10

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 11

When Congress reduces spending in order to balance the government's budget,it needs to consider

Accepted Answer

A)   both the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth.
B)   only the short-run effects on aggregate demand and aggregate supply.
C)   only the long-run effects on saving and growth.
D)   only the long-run effects on aggregate demand and aggregate supply.E) C) and D)
F) A) and B)

Question 12

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th...

Question 13

According to liquidity preference theory,if there were a shortage of money,then

Accepted Answer

A)   the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)   the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)   the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)   the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) A) and B)
F) A) and C)

Question 14

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 15

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) B) and C)
F) All of the above

Question 16

According to liquidity preference theory,the money-supply curve would shift if the Fed

Accepted Answer

A)   engaged in open-market transactions.
B)   changed the discount rate.
C)   changed the reserve requirement.
D)   did any of the above.E) A) and C)
F) A) and B)

Question 17

If the Fed conducts open-market purchases,then which of the following quantities increase(s) ?

Accepted Answer

A)   interest rates,prices,and investment spending
B)   interest rates and prices,but not investment spending
C)   prices and investment spending,but not interest rates
D)   interest rates,but not prices or investment spendingE) C) and D)
F) None of the above

Question 18

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)   An increase in government expenditures increases aggregate spending so that Gas-n-Go decides to modernize its gas stations.
B)   An increase in government expenditures increases the interest rate so that Gas-n-Go decides to modernize its gas stations.
C)   An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Gas-n-Go rises.
D)   An increase in government expenditures decreases the interest rate so that Gas-n-Go decides to modernize its gas stations.E) A) and D)
F) A) and C)

Question 19

Figure 34-4.On the figure,MS represents money supply and MD represents money
demand. 2 to MD1 is consistent with which of the following sets of events? A)  The government cuts taxes,resulting in an increase in people's incomes. B)  The government reduces government spending,resulting in a decrease in people's incomes. C)  The Federal Reserve increases the supply of money,which decreases the interest rate. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4.A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)   The government cuts taxes,resulting in an increase in people's incomes.
B)   The government reduces government spending,resulting in a decrease in people's incomes.
C)   The Federal Reserve increases the supply of money,which decreases the interest rate.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 20

Open-market purchases

Accepted Answer

A)   increase the price level and real GDP.
B)   decrease the price level and real GDP.
C)   increase the price level and decrease real GDP.
D)   decrease the price level and increase real GDP.E) C) and D)
F) A) and B)

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

When the Fed lowers the growth rate of the money supply,it must take into account

Correct Answer
verified

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Correct Answer
verified

Correct Answer
verified

The multiplier is computed as MPC / (1 - MPC).

Correct Answer
verified

According to liquidity preference theory,if there were a shortage of money,then

Correct Answer
verified

According to liquidity preference theory,an increase in the price level causes the interest rate to

Correct Answer
verified

In the short run,

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

When there is an increase in government expenditures,which of the following raises investment spending?

Correct Answer
verified

When Congress reduces spending in order to balance the government's budget,it needs to consider

Correct Answer
verified

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

If the Fed conducts open-market purchases,then which of the following quantities increase(s) ?

Correct Answer
verified

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
verified

On the graph that depicts the theory of liquidity preference,

Correct Answer
verified

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Correct Answer
verified

Open-market purchases

Correct Answer
verified

According to liquidity preference theory,the money-supply curve would shift if the Fed

Correct Answer
verified

If the Fed conducts open-market purchases,the money supply

Correct Answer
verified

According to classical macroeconomic theory,

Correct Answer
verified

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

When the Fed lowers the growth rate of the money supply,it must take into account

Correct AnswerverifiedShow Answer

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The multiplier is computed as MPC / (1 - MPC).

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if there were a shortage of money,then

Correct AnswerverifiedShow Answer

According to liquidity preference theory,an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

When there is an increase in government expenditures,which of the following raises investment spending?

Correct AnswerverifiedShow Answer

When Congress reduces spending in order to balance the government's budget,it needs to consider

Correct AnswerverifiedShow Answer

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct AnswerverifiedAs consumers become pessimistic about th...View AnswerShow Answer

If the Fed conducts open-market purchases,then which of the following quantities increase(s) ?

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

Open-market purchases

Correct AnswerverifiedShow Answer

According to liquidity preference theory,the money-supply curve would shift if the Fed

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases,the money supply

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

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As consumers become pessimistic about th...
View Answer

Correct Answer
verified

Correct 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.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
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Correct Answer
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