Question 1

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 2

An increase in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right.
B)  aggregate demand to the left.
C)  aggregate supply to the right.
D)  neither aggregate demand nor aggregate supply in either direction.E) A) and B)
F) A) and C)

Question 3

The Kennedy tax cut of 1964 was

Accepted Answer

A)  successful in stimulating the economy.
B)  designed to shift the aggregate demand curve to the right.
C)  designed to shift the aggregate supply curve to the right.
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 4

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)  multiplier effect.
B)  crowding-out effect.
C)  accelerator effect.
D)  Ricardian equivalence effect.E) B) and C)
F) All of the above

Question 5

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates.
B)  the effects of changes in money demand and supply on exchange rates.
C)  the effects of wealth on expenditures.
D)  the difference between temporary and permanent changes in income.E) A) and B)
F) A) and C)

Question 6

When the interest rate is above the equilibrium level,

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)  bond issuers and banks respond by lowering the interest rates they offer.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 7

For the U.S. economy, money holdings are a

Accepted Answer

A)  large part of household wealth, and so the interest-rate effect is large.
B)  large part of household wealth, and so the wealth effect is large.
C)  small part of household wealth, and so the interest-rate effect is small.
D)  small part of household wealth, and so the wealth effect is small.E) A) and C)
F) None of the above

Question 8

According to liquidity preference theory, a decrease 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) A) and C)

Question 9

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the price level
B)  an increase in the money supply
C)  a decrease in the price level
D)  a decrease in the money supplyE) A) and B)
F) None of the above

Question 10

One of President Obama's first fiscal policy initiatives was​

Accepted Answer

A)  ​ARRA.
B)  ​TARP.
C)  ​QE1.
D)  ​QE2.E) B) and C)
F) B) and D)

Question 11

Fiscal 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) All of the above
F) A) and B)

Question 12

People hold money primarily because it

Accepted Answer

A)  increases in value when there is inflation.
B)  serves as a store of value.
C)  serves as a medium of exchange.
D)  functions as a unit of account.E) A) and B)
F) None of the above

Question 13

The _____ is the most important automatic stabilizer.

Accepted Answer

The answer of The _____ is the most important automatic...

Question 14

Monetary policy

Accepted Answer

A)  can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)  can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)  cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)  cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) C) and D)
F) None of the above

Question 15

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the price level
B)  a decrease in the price level
C)  an increase in the interest rate
D)  a decrease in the interest rateE) B) and D)
F) None of the above

Question 16

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 17

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

Question 18

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 1. If the current interest rate is r2, then A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. B) people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. C) bond issuers and banks will respond by lowering the interest rates they offer. D) in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)  people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)  bond issuers and banks will respond by lowering the interest rates they offer.
D)  in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.E) B) and D)
F) All of the above

Question 19

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)  repeal an investment tax credit or increase the money supply
B)  repeal an investment tax credit or decrease the money supply
C)  institute an investment tax credit or increase the money supply
D)  institute an investment tax credit or decrease the money supplyE) A) and B)
F) C) and D)

Question 20

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

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

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

For the U.S. economy, money holdings are a

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Correct AnswerverifiedShow Answer

Liquidity preference refers directly to Keynes' theory concerning

Correct AnswerverifiedShow Answer

One of President Obama's first fiscal policy initiatives was​

Correct AnswerverifiedShow Answer

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Correct AnswerverifiedShow Answer

According to liquidity preference theory, a decrease in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

An increase in government spending initially and primarily shifts

Correct AnswerverifiedShow Answer

Fiscal policy is determined by

Correct AnswerverifiedShow Answer

The _____ is the most important automatic stabilizer.

Correct AnswerverifiedShow Answer

People hold money primarily because it

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 was

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

When the interest rate is above the equilibrium level,

Correct AnswerverifiedShow Answer

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the right?

Correct AnswerverifiedShow 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. Suppose the money-demand curve is currently MD₁. If the current interest rate is r₂, then

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One of President Obama's first fiscal policy initiatives was

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