Question 1

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)  the fact that business firms make investment plans far in advance.
B)  the political system of checks and balances that slows down the process of implementing fiscal policy.
C)  the time it takes for changes in government spending or taxes to affect the interest rate.
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 2

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 1. Which of the following events would cause the equilibrium interest rate to increase? A) The Federal Reserve increases the money supply. B) Money demand increases. C) The price level decreases. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)  The Federal Reserve increases the money supply.
B)  Money demand increases.
C)  The price level decreases.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Question 3

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 4

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)  the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)  changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) A) and D)
F) A) and B)

Question 5

Which of the following is an example of crowding out?

Accepted Answer

A)  An increase in government spending increases interest rates, causing investment to fall.
B)  A decrease in private savings increases interest rates, causing investment to fall.
C)  A decrease in the money supply increases interest rates, causing investment to fall.
D)  An increase in taxes increases interest rates, causing investment to fall.E) None of the above
F) All of the above

Question 6

Keynes argued that

Accepted Answer

A)  irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.
B)  irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply.
C)  changes in business and consumer expectations generally stabilize the economy.
D)  All of the above are correct.E) A) and D)
F) A) and B)

Question 7

As the MPC gets close to 1, the value of the multiplier approaches

Accepted Answer

A)  0.
B)  1.
C)  infinity.
D)  None of the above is correct.E) All of the above
F) A) and B)

Question 8

Macroeconomic forecasts are

Accepted Answer

A)  precise; this makes policy lags less relevant.
B)  precise; this makes policy lags more relevant.
C)  imprecise; this makes policy lags less relevant.
D)  imprecise; this makes policy lags more relevant.E) A) and D)
F) C) and D)

Question 9

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase, ...

Question 10

According to John Maynard Keynes,

Accepted Answer

A)  the demand for money in a country is determined entirely by that nation's central bank.
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country.
C)  the interest rate adjusts to balance the supply of, and demand for, money.
D)  the interest rate adjusts to balance the supply of, and demand for, goods and services.E) All of the above
F) B) and D)

Question 11

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $283 billion and $254.7 billion
B)  $283 billion and $283 billion
C)  $300 billion and $270 billion
D)  $300 billion and $300 billionE) None of the above
F) A) and B)

Question 12

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)  the money supply.
B)  government spending and taxes.
C)  trade policy.
D)  All of the above are correct.E) A) and D)
F) All of the above

Question 13

As real GDP falls,

Accepted Answer

A)  money demand rises, so the interest rate rises.
B)  money demand rises, so the interest rate falls
C)  money demand falls, so the interest rate rises.
D)  money demand falls, so the interest rate falls.E) C) and D)
F) None of the above

Question 14

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary, ...

Question 15

Changes in the interest rate bring the money market into equilibrium according to

Accepted Answer

A)  both liquidity preference theory and classical theory.
B)  neither liquidity preference theory nor classical theory.
C)  liquidity preference theory, but not classical theory.
D)  classical theory, but not liquidity preference theory.E) A) and B)
F) A) and C)

Question 16

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds.
B)  the inflation rate.
C)  the cost of converting bonds to a medium of exchange.
D)  the difference between the inflation rate and the interest rate on bonds.E) A) and B)
F) B) and D)

Question 17

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)  Keynesian in nature, and that his view is more valid for the long run than for the short run.
B)  classical in nature, and that his view is more valid for the long run than for the short run.
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run.
D)  classical in nature, and that his view is more valid for the short run than for the long run.E) All of the above
F) C) and D)

Question 18

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 constructionE) C) and D)
F) All of the above

Question 19

Figure 34-6. 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 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is A) $15 billion. B) $40 billion. C) $35 billion. D) $95 billion." class="answers-bank-image d-inline" rel="preload" > 1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is A) $15 billion. B) $40 billion. C) $35 billion. D) $95 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-6. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $15 billion.
B)  $40 billion.
C)  $35 billion.
D)  $95 billion.E) A) and B)
F) A) and C)

Question 20

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates increase the quantity of money demanded.
B)  depends on the idea that increases in interest rates increase the quantity of money supplied.
C)  is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.E) None of the above
F) All of the above

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

As real GDP falls,

Correct Answer
verified

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

Correct Answer
verified

To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

Correct Answer
verified
increase, ...
View Answer

The lag problem associated with fiscal policy is due mostly to

Correct Answer
verified

Which of the following is an example of crowding out?

Correct Answer
verified

Macroeconomic forecasts are

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

Correct Answer
verified

Keynes argued that

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₁. Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

As the MPC gets close to 1, the value of the multiplier approaches

Correct Answer
verified

According to John Maynard Keynes,

Correct Answer
verified

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct Answer
verified

Changes in the interest rate bring the money market into equilibrium according to

Correct Answer
verified

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Correct Answer
verified

According to liquidity preference theory, the opportunity cost of holding money is

Correct Answer
verified

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

As real GDP falls,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Correct Answerverifiedincrease, ...View AnswerShow Answer

The lag problem associated with fiscal policy is due mostly to

Correct AnswerverifiedShow Answer

Which of the following is an example of crowding out?

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Keynes argued that

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 current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

As the MPC gets close to 1, the value of the multiplier approaches

Correct AnswerverifiedShow Answer

According to John Maynard Keynes,

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

Changes in the interest rate bring the money market into equilibrium according to

Correct AnswerverifiedShow Answer

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

Correct Answer
verified
increase, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₁. Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified