Question 1

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 2

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)  increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
B)  decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded.
C)  increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.
D)  decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.E) A) and B)
F) A) and D)

Question 3

Figure 34-4 2. If the Federal Reserve increases the money supply, and the price level does not change, A) there will be an increase in the equilibrium quantity of goods and services demanded. B) there will be a decrease in the equilibrium quantity of goods and services demanded. C) there will be an increase in the equilibrium interest rate. D) fewer firms will choose to borrow to build new factories and buy new equipment." class="answers-bank-image d-inline" rel="preload" > ​
​
-2Refer to Figure 34-4. Suppose the current equilibrium interest rate is r2. If the Federal Reserve increases the money supply, and the price level does not change,

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded.
B)  there will be a decrease in the equilibrium quantity of goods and services demanded.
C)  there will be an increase in the equilibrium interest rate.
D)  fewer firms will choose to borrow to build new factories and buy new equipment.E) A) and B)
F) A) and D)

Question 4

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Accepted Answer

increases,...

Question 5

Figure 34-6 2 to MD1 is consistent with which of the following sets of events? A) The government cuts taxes, resulting in an increase in people's incomes. B) The government reduces government spending, resulting in a decrease in people's incomes. C) The Federal Reserve increases the supply of money, which decreases the interest rate. D) The Federal Reserve decreases the supply of money, which increases the interest rate." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-6. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes.
B)  The government reduces government spending, resulting in a decrease in people's incomes.
C)  The Federal Reserve increases the supply of money, which decreases the interest rate.
D)  The Federal Reserve decreases the supply of money, which increases the interest rate.E) C) and D)
F) All of the above

Question 6

When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through

Accepted Answer

A)  sales of government bonds, which reduces interest rates and causes people to hold less money.
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money.
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money.
D)  sales of government bonds, which reduces interest rates and causes people to hold more money.E) None of the above
F) A) and C)

Question 7

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 8

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 9

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 10

Figure 34-2
(a)  The Money Market
(b)  The Aggregate Demand Curve 1 to Y2 is explained as follows: A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2." class="answers-bank-image d-inline" rel="preload" > 1 to Y2 is explained as follows: A) The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. B) An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. C) A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. D) An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)  The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
B)  An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
C)  A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
D)  An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.E) C) and D)
F) A) and D)

Question 11

Figure 34-8  ​
-Refer to Figure 34-8. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-8  ​
-Refer to Figure 34-8....

Question 12

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Accepted Answer

supply, fa...

Question 13

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand.
B)  the smaller the MPC and the weaker the influence of income on money demand.
C)  the larger the MPC and the stronger the influence of income on money demand.
D)  the larger the MPC and the weaker the influence of income on money demand.E) B) and C)
F) B) and D)

Question 14

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Suppose there is a tax decrease. To stabilize output, the Federal Reserve could

Accepted Answer

A)  decrease government spending.
B)  decrease the money supply.
C)  increase government spending.
D)  increase the money supply.E) C) and D)
F) B) and D)

Question 17

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $7 billion. An increase in government purchases of $40 billion will shift aggregate demand to the

Accepted Answer

A)  left by $165 billion.
B)  left by $193 billion.
C)  right by $193 billion.
D)  right by $165 billion.E) A) and C)
F) None of the above

Question 18

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa...

Question 19

The Employment Act of 1946 states that

Accepted Answer

A)  the Fed should use monetary policy only to control the rate of inflation.
B)  the government should promote full employment and production.
C)  the government should periodically increase the minimum wage and unemployment insurance benefits.
D)  the government should aim for a 0% unemployment rate.E) A) and B)
F) B) and C)

Question 20

Figure 34-9  ​
-Refer to Figure 34-9. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $_____ if there is no crowding-out. If crowding-out exists, then aggregate demand will likely to increase to $_____.

Accepted Answer

The answer of Figure 34-9  ​
-Refer to Figure 34-9....

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

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct AnswerverifiedShow Answer

Suppose there is a tax decrease. To stabilize output, the Federal Reserve could

Correct AnswerverifiedShow Answer

Figure 34-4 ​ ​ -2Refer to Figure 34-4. Suppose the current equilibrium interest rate is r2. If the Federal Reserve increases the money supply, and the price level does not change,

Correct AnswerverifiedShow Answer

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

Figure 34-2 (a) The Money Market (b) The Aggregate Demand Curve -Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

Correct AnswerverifiedShow Answer

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

Figure 34-8 ​ -Refer to Figure 34-8. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Correct AnswerverifiedShow Answer

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Correct Answerverifiedincreases,...View AnswerShow Answer

When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through

Correct AnswerverifiedShow Answer

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $7 billion. An increase in government purchases of $40 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct AnswerverifiedShow Answer

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Correct AnswerverifiedShow Answer

Figure 34-6 -Refer to Figure 34-6. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 34-4 -2Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₂. If the Federal Reserve increases the money supply, and the price level does not change,

Correct Answer
verified

Correct Answer
verified

Figure 34-2 (a) The Money Market (b) The Aggregate Demand Curve -Refer to Figure 34-2. A decrease in Y from Y₁ to Y₂ is explained as follows:

Correct Answer
verified

Correct Answer
verified

Figure 34-8 -Refer to Figure 34-8. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

Correct Answer
verified

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Correct Answer
verified
supply, fa...
View Answer

Correct Answer
verified

The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.

Correct Answer
verified
increases,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 34-6 -Refer to Figure 34-6. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
verified

An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

Correct Answer
verified
supply, fa...
View Answer