Question 1

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

Accepted Answer

monetary, ...

Question 2

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)  increase consumption spending.
B)  increase investment spending.
C)  increase both consumption and investment spending.
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 3

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Accepted Answer

The answer of When the Federal Funds rate is above...

Question 4

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)  $1480
B)  $480
C)  $160
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 5

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 6

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is an example of an increase in government purchases?

Accepted Answer

A)  The government builds new roads.
B)  The Federal Reserve purchases government bonds.
C)  The government decreases personal income taxes.
D)  The government increases unemployment insurance benefit payments.E) A) and B)
F) A) and C)

Question 8

A decrease in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases.
B)  increases the interest rate and so decreases investment spending decreases.
C)  decreases the interest rate and so investment spending increases.
D)  decreases the interest rate and so investment spending decreases.E) A) and C)
F) C) and D)

Question 9

Monetary policy is determined by

Accepted Answer

A)  the president and Congress and involves changing government spending and taxation.
B)  the president and Congress and involves changing the money supply.
C)  the Federal Reserve and involves changing government spending and taxation.
D)  the Federal Reserve and involves changing the money supply.E) C) and D)
F) A) and B)

Question 10

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) C) and D)
F) B) and D)

Question 11

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level.
B)  the interest rate.
C)  the exchange rate.
D)  real wealth.E) B) and C)
F) C) and D)

Question 12

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A)  the interest-rate effect.
B)  the exchange-rate effect.
C)  the theory of liquidity preference.
D)  the wealth effect.E) B) and C)
F) A) and C)

Question 13

Which of the following effects results from the change in the interest rate created by an increase in government 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 crowding out nor the investment acceleratorE) A) and B)
F) None of the above

Question 14

According to liquidity preference theory,

Accepted Answer

A)  an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.
B)  an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward.
C)  an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward.
D)  an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.E) C) and D)
F) B) and C)

Question 15

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need ...

Question 16

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)  an increase in the money supply and an increase in government purchases.
B)  an increase in the money supply and a decrease in government purchases.
C)  a decrease in the money supply and an increase in government purchases.
D)  a decrease in the money supply and a decrease in government purchases.E) A) and B)
F) None of the above

Question 17

​If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from

Accepted Answer

A)  ​5 to 2.5.
B)  ​2.5 to 5.
C)  ​0.8 to 0.6.
D)  ​8 to 6.E) B) and C)
F) C) and D)

Question 18

When households decide to hold more money,

Accepted Answer

A)  interest rates fall and investment decreases.
B)  interest rates fall and investment increases.
C)  interest rates rise and investment increases.
D)  interest rates rise and investment decreases.E) A) and B)
F) All of the above

Question 19

If the multiplier is 5.25, then the MPC is

Accepted Answer

A)  0.19.
B)  0.68.
C)  0.81.
D)  0.84.E) All of the above
F) C) and D)

Question 20

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)  the interest rate falls because money demand shifts right.
B)  the interest rate falls because money demand shifts left.
C)  the interest rate rises because money supply shifts right.
D)  the interest rate rises because money supply shifts left.E) C) and D)
F) A) and D)

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

A decrease in government spending

Correct Answer
verified

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct Answer
verified

According to liquidity preference theory, if the price level decreases, then

Correct Answer
verified

Correct Answer
verified

If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from

Correct Answer
verified

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct Answer
verified

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct Answer
verified
When the price level falls, people need ...
View Answer

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Correct Answer
verified

Which of the following is an example of an increase in government purchases?

Correct Answer
verified

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

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

When households decide to hold more money,

Correct Answer
verified

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct Answer
verified

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

Correct Answer
verified
monetary, ...
View Answer

Stock prices often rise when the Fed raises interest rates.

Correct Answer
verified

According to liquidity preference theory,

Correct Answer
verified

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

Correct Answer
verified

Monetary policy is determined by

Correct Answer
verified

If the multiplier is 5.25, then the MPC is

Correct Answer
verified

The Fed is concerned about stock market booms because the booms

Correct Answer
verified

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

A decrease in government spending

Correct AnswerverifiedShow Answer

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level decreases, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

​If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from

Correct AnswerverifiedShow Answer

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls, people need ...View AnswerShow Answer

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Correct AnswerverifiedShow Answer

Which of the following is an example of an increase in government purchases?

Correct AnswerverifiedShow Answer

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

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

When households decide to hold more money,

Correct AnswerverifiedShow Answer

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedmonetary, ...View AnswerShow Answer

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

According to liquidity preference theory,

Correct AnswerverifiedShow Answer

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Correct AnswerverifiedShow Answer

Monetary policy is determined by

Correct AnswerverifiedShow Answer

If the multiplier is 5.25, then the MPC is

Correct AnswerverifiedShow Answer

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the price level falls, people need ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
monetary, ...
View Answer

Correct Answer
verified

Correct Answer
verified

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified