Question 1

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

Question 2

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 3

When taxes increase, the interest rate

Accepted Answer

A)  increases, making the change in aggregate demand larger.
B)  increases, making the change in aggregate demand smaller
C)  decreases, making the change in aggregate demand larger.
D)  decreases, making the change in aggregate demand smaller.E) B) and C)
F) C) and D)

Question 4

Which of the following statements is correct for the long run?

Accepted Answer

A)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust.
D)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) None of the above
F) B) and C)

Question 5

People will want to hold more money if the price level

Accepted Answer

A)  or if the interest rate increases.
B)  or if the interest rate decreases.
C)  increases or if the interest rate decreases.
D)  decreases or if the interest rate increases.E) B) and D)
F) A) and C)

Question 6

If the MPC is 3/5 then the multiplier is

Accepted Answer

A)  4, so a $100 increase in government spending increases aggregate demand by $400.
B)  1.5, so a $100 increase in government spending increases output by $150.
C)  2.5, so a $100 increase in government spending increases aggregate demand by $250.
D)  1.67, so a $100 increase in government spending increases output by $166.67.E) All of the above
F) A) and D)

Question 7

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Accepted Answer

A)  the accelerator effect.
B)  the multiplier effect.
C)  the chain effect.
D)  the bandwagon effect.E) None of the above
F) A) and B)

Question 8

If the government cuts the tax rate, workers get to keep

Accepted Answer

A)  less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
B)  less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
C)  more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
D)  more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.E) B) and D)
F) A) and C)

Question 9

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded.
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded.
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded.
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.E) C) and D)
F) None of the above

Question 10

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. The multiplier for this economy is

Accepted Answer

A)  1.31.
B)  6.25.
C)  2.78.
D)  2.27.E) None of the above
F) A) and D)

Question 11

Critics of stabilization policy argue that

Accepted Answer

A)  there is a lag between the time policy is passed and the time policy has an impact on the economy.
B)  the impact of policy may last longer than the problem it was designed to offset.
C)  policy can be a source of, instead of a cure for, economic fluctuations.
D)  All of the above are correct.E) B) and D)
F) A) and D)

Question 12

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds.
B)  People choose to hold more currency.
C)  You decide to purchase a new oven for your cookie factory.
D)  All of the above are correct.E) A) and D)
F) B) and C)

Question 13

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)  the interest rate falls and aggregate supply is relatively flat
B)  the interest rate falls and aggregate supply is relatively steep
C)  the interest rate rises and aggregate supply is relatively flat
D)  the interest rate rises and aggregate supply is relatively steepE) A) and C)
F) All of the above

Question 14

If the MPC = 4/5, then the government purchases multiplier is

Accepted Answer

A)  5/4.
B)  4/5.
C)  5.
D)  20.E) C) and D)
F) A) and D)

Question 15

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, A) the price level is held fixed at P1. B) the interest rate is held fixed at r1. C) the money supply is changing so as to keep the money market in equilibrium. D) the expected inflation rate is changing so as to keep the real interest rate constant." class="answers-bank-image d-inline" rel="preload" > 1, A) the price level is held fixed at P1. B) the interest rate is held fixed at r1. C) the money supply is changing so as to keep the money market in equilibrium. D) the expected inflation rate is changing so as to keep the real interest rate constant." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)  the price level is held fixed at P1.
B)  the interest rate is held fixed at r1.
C)  the money supply is changing so as to keep the money market in equilibrium.
D)  the expected inflation rate is changing so as to keep the real interest rate constant.E) B) and D)
F) B) and C)

Question 16

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)  size of the money supply.
B)  growth rate of the money supply.
C)  federal funds rate.
D)  discount rate.E) A) and C)
F) A) and B)

Question 17

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, 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.E) B) and D)
F) B) and C)

Question 18

If the Fed conducts open-market sales, 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) A) and D)
F) B) and D)

Question 19

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Accepted Answer

A)  purchasing government bonds. This action will reduce investment and shift aggregate demand to the right.
B)  purchasing government bonds. This action will increase investment and shift aggregate demand to the right.
C)  selling government bonds. This action will reduce investment and shift aggregate demand to the left.
D)  selling government bonds. This action will increase investment and shift aggregate demand to the left.E) A) and D)
F) A) and C)

Question 20

​Which of the following events shifts the aggregate-demand curve leftward?

Accepted Answer

A)  ​A decrease in government expenditures, but not a change in the price level.
B)  ​An increase in government expenditures or a decrease in the price level.
C)  ​A decrease in government expenditures or an increase in the price level.
D)  ​An increase in the price level, but not a decrease in government expenditures.E) A) and B)
F) None of the above

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

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Correct Answer
verified

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct Answer
verified

If the government cuts the tax rate, workers get to keep

Correct Answer
verified

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

Correct Answer
verified

People will want to hold more money if the price level

Correct Answer
verified

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

Correct Answer
verified

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct Answer
verified

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. The multiplier for this economy is

Correct Answer
verified

Which of the following events shifts the aggregate-demand curve leftward?

Correct Answer
verified

Correct Answer
verified

When taxes increase, the interest rate

Correct Answer
verified

Which of the following statements is correct for the long run?

Correct Answer
verified

Which of the following properly describes the interest-rate effect?

Correct Answer
verified

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
verified

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Correct Answer
verified

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

Correct Answer
verified

If the MPC = 4/5, then the government purchases multiplier is

Correct Answer
verified

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct Answer
verified

If the MPC is 3/5 then the multiplier is

Correct Answer
verified

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

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct AnswerverifiedShow Answer

If the government cuts the tax rate, workers get to keep

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

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. The multiplier for this economy is

Correct AnswerverifiedShow Answer

​Which of the following events shifts the aggregate-demand curve leftward?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When taxes increase, the interest rate

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the long run?

Correct AnswerverifiedShow Answer

Which of the following properly describes the interest-rate effect?

Correct AnswerverifiedShow Answer

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the MPC = 4/5, then the government purchases multiplier is

Correct AnswerverifiedShow Answer

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct AnswerverifiedShow Answer

If the MPC is 3/5 then the multiplier is

Correct AnswerverifiedShow Answer

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Which of the following events shifts the aggregate-demand curve leftward?

Correct Answer
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