Question 1

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

Question 2

If the Federal Reserve's goal is to stabilize aggregate demand, then it will _____ the money supply in response to a stock market boom. This causes interest rates to _____.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 3

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 4

According to classical macroeconomic theory,

Accepted Answer

A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)  output is determined by the supplies of capital and labor and the available production technology.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 5

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)  left by $60 billion.
B)  left by $36 billion.
C)  right by $68 billion.
D)  right by $36 billion.E) None of the above
F) B) and C)

Question 6

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level
B)  an increase in the interest rate, but not an increase in the price level
C)  an increase in the price level, but not an increase in the interest rate
D)  neither an increase in the interest rate nor an increase in the price levelE) All of the above
F) B) and C)

Question 8

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct?

Accepted Answer

A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium.
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium.
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium.
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.E) C) and D)
F) None of the above

Question 10

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls.
B)  the price level falls or the money supply rises.
C)  the price level rises or the money supply falls.
D)  the price level rises or the money supply rises.E) All of the above
F) A) and C)

Question 11

An increase in taxes shifts the aggregate _____ curve to the _____.

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 12

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 13

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Accepted Answer

A) True 
 B)False

Question 14

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

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

Question 15

People choose to hold a smaller quantity of money if​

Accepted Answer

A)  ​the interest rate increases, which causes the opportunity cost of holding money to increase.
B)  ​the interest rate increases, which causes the opportunity cost of holding money to decrease.
C)  ​the interest rate decreases, which causes the opportunity cost of holding money to increase.
D)  ​the interest rate decreases, which causes the opportunity cost of holding money to decrease.E) B) and C)
F) A) and D)

Question 16

Automatic stabilizers

Accepted Answer

A)  increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)  are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)  are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)  All of the above are correct.E) A) and B)
F) All of the above

Question 17

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)  proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)  monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)  changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)  changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.E) All of the above
F) B) and D)

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

Question 19

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply.
B)  buy bonds to raise the money supply.
C)  sell bonds to lower the money supply.
D)  sell bonds to raise the money supply.E) B) and D)
F) B) and C)

Question 20

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right.
B)  In the long run, increases in the money supply increase prices, but not output.
C)  Recessions are associated with decreases in consumption, investment, and employment.
D)  Government should use fiscal policy to try to stabilize the economy.E) A) and B)
F) All of the above

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

If the Federal Reserve decided to raise interest rates, it could

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The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

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Permanent tax cuts have a larger impact on consumption spending than temporary ones.

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

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People choose to hold a smaller quantity of money if​

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An increase in taxes shifts the aggregate _____ curve to the _____.

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​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

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Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Correct AnswerverifiedShow Answer

Monetary policy affects the economy with a long lag, in part because

Correct AnswerverifiedShow Answer

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

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The interest rate falls if

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

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

Automatic stabilizers

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If the Federal Reserve's goal is to stabilize aggregate demand, then it will _____ the money supply in response to a stock market boom. This causes interest rates to _____.

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Liquidity refers to

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Which of the following statements generates the greatest amount of disagreement among economists?

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

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Which of the following statements is correct?

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The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

Correct Answer
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People choose to hold a smaller quantity of money if

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An increase in taxes shifts the aggregate _ curve to the _.

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According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.

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If the Federal Reserve's goal is to stabilize aggregate demand, then it will _ the money supply in response to a stock market boom. This causes interest rates to _.

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