Question 1

Other things equal,the higher the price level,the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

decrease t...

Question 3

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)   the tax increase reduces consumption;the change in the interest rate reduces residential construction
B)   the tax increase reduces consumption;the change in the interest rate raises residential construction .
C)   the tax increase raises consumption;the change in the interest rate reduces residential construction
D)   the tax increase raises consumption;the change in the interest rate reduces residential construction.E) B) and C)
F) None of the above

Question 4

Figure 21-1 
-Refer to Figure 21-1.Which of the following is correct?

Accepted Answer

A)   If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall.
B)   If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise.
C)   Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium.
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 5

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) None of the above
F) A) and C)

Question 6

Suppose an increase in interest rates causes rising unemployment and falling output.To counter this,the Federal Reserve would

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) A) and D)
F) None of the above

Question 7

When there is an excess demand for money,households will _____ interest-bearing bonds,causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 8

Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) A) and D)
F) B) and D)

Question 9

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   The price level rises.
B)   The price level falls.
C)   The Fed purchases government bonds on the open market.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 10

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) None of the above
F) A) and D)

Question 11

During recessions,automatic stabilizers tend to make the government's budget

Accepted Answer

A)   move toward deficit.
B)   move toward surplus.
C)   move toward balance.
D)   not necessarily move the budget in any particular direction.E) A) and B)
F) A) and C)

Question 12

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 13

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect,but not the crowding-out effect
C)   the crowding-out effect,but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) B) and D)
F) B) and C)

Question 15

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A)   increases by more than the change in the nominal interest rate.
B)   increases by the change in the nominal interest rate.
C)   decreases by the change in the nominal interest rate.
D)   decreases by more than the change in the nominal interest rate.E) None of the above
F) A) and C)

Question 16

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 B)
F) B) and D)

Question 17

A tax cut shifts aggregate demand

Accepted Answer

A)   by more than the amount of the tax cut.
B)   by the same amount as the tax cut.
C)   by less than the tax cut.
D)   None of the above is necessarily correct.E) A) and D)
F) None of the above

Question 18

Liquidity refers to

Accepted Answer

A)   the relation between the price and interest rate of an asset.
B)   the risk of an asset relative to its selling price.
C)   the ease with which an asset is converted into a medium of exchange.
D)   the sensitivity of investment spending to changes in the interest rate.E) None of the above
F) All of the above

Question 19

A European recession that reduces U.S.net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S.net exports...

Question 20

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

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

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Correct AnswerverifiedShow Answer

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When there is an excess demand for money,households will _____ interest-bearing bonds,causing interest rates to _____.

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

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Suppose an increase in interest rates causes rising unemployment and falling output.To counter this,the Federal Reserve would

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

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Correct AnswerverifiedShow Answer

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct AnswerverifiedShow Answer

Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would

Correct AnswerverifiedShow Answer

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

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

During recessions,automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

Other things equal,the higher the price level,the higher is the real wealth of households.

Correct AnswerverifiedShow Answer

Figure 21-1 -Refer to Figure 21-1.Which of the following is correct?

Correct AnswerverifiedShow Answer

A European recession that reduces U.S.net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

Liquidity refers to

Correct AnswerverifiedShow Answer

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When there is an excess demand for money,households will _ interest-bearing bonds,causing interest rates to _.

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decrease t...
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