Question 1

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Accepted Answer

A)   shifts rightward by $62.5 billion.
B)   shifts rightward by $50.0 billion.
C)   shifts rightward by $32.5 billion.
D)   None of the above is correct.E) All of the above
F) None of the above

Question 2

If there is excess demand for money,then people will

Accepted Answer

A)   deposit more money into interest-bearing accounts,and the interest rate will fall.
B)   deposit more money into interest-bearing accounts,and the interest rate will rise.
C)   withdraw money from interest-bearing accounts,and the interest rate will fall.
D)   withdraw money from interest-bearing accounts,and the interest rate will rise.E) A) and C)
F) B) and D)

Question 3

Figure 34-5.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.Also,suppose the horizontal distance between the curves AD1 and AD3 is $20 billion.The extent of crowding out,for any particular level of the price level,is A)  the horizontal distance between the curves MD1 and MD2. B)  $40 billion. C)  $30 billion. D)  $20 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-5.Suppose the multiplier is 5 and the government increases its purchases by $10 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.Also,suppose the horizontal distance between the curves AD1 and AD3 is $20 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)   the horizontal distance between the curves MD1 and MD2.
B)   $40 billion.
C)   $30 billion.
D)   $20 billion.E) A) and B)
F) None of the above

Question 4

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 5

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) A) and D)
F) B) and C)

Question 6

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)   r = 0.07,P = 1.0
B)   r = 0.05,P = 1.0
C)   r = 0.04,P = 1.2
D)   r = 0.04,P = 1.0E) C) and D)
F) A) and B)

Question 7

During recessions,taxes tend to

Accepted Answer

A)   rise and thereby increase aggregate demand.
B)   rise and thereby decrease aggregate demand.
C)   fall and thereby increase aggregate demand.
D)   fall and thereby decrease aggregate demand.E) B) and D)
F) None of the above

Question 8

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

Accepted Answer

A)   sell interest-bearing assets,causing the interest rate to decrease.
B)   sell interest-bearing assets,causing the interest rate to increase.
C)   buy interest-bearing assets,causing the interest rate to decrease.
D)   buy interest-bearing assets,causing the interest rate to increase.E) A) and B)
F) A) and D)

Question 9

When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 10

Open-market purchases

Accepted Answer

A)   increase investment and real GDP.
B)   decrease investment and increase real GDP.
C)   increase investment and decrease real GDP.
D)   decrease investment and real GDP.E) A) and B)
F) A) and C)

Question 11

Figure 34-2.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.
 
-Refer to Figure 34-2.If the money-supply curve MS on the left-hand graph were to shift to the right,this would

Accepted Answer

A)   represent an action taken by the Federal Reserve.
B)   shift the AD curve to the left.
C)   create,until the interest rate adjusted,an excess demand for money at the interest rate that equilibrated the money market before the shift.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 12

Figure 34-1 
-Refer to Figure 34-1.If the current interest rate is 2 percent,

Accepted Answer

A)   there is an excess supply of money.
B)   people will sell more bonds,which drives interest rates up.
C)   as the money market moves to equilibrium,people will buy more goods.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 13

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

A)   $151.25.
B)   $166.75.
C)   $170.20.
D)   $175.00.E) None of the above
F) C) and D)

Question 14

Figure 34-2.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.
 
-Refer to Figure 34-2.What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)   the quantity of money
B)   the rate of inflation
C)   real output
D)   nominal outputE) B) and D)
F) A) and B)

Question 15

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)   monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)   monetary policy can be described either in terms of the exchange rate or the interest rate.
C)   monetary policy must be described in terms of the money supply.
D)   monetary policy must be described in terms of the interest rate.E) None of the above
F) B) and C)

Question 16

People are likely to want to hold more money if the interest rate

Accepted Answer

A)   increases,making the opportunity cost of holding money rise.
B)   increases,making the opportunity cost of holding money fall.
C)   decreases,making the opportunity cost of holding money rise.
D)   decreases,making the opportunity cost of holding money fall.E) C) and D)
F) B) and C)

Question 17

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) B) and D)
F) C) and D)

Question 18

When the Fed sells government bonds,the reserves of the banking system

Accepted Answer

A)   increase,so the money supply increases.
B)   increase,so the money supply decreases.
C)   decrease,so the money supply increases.
D)   decrease,so the money supply decreases.E) A) and B)
F) None of the above

Question 19

According to the theory of liquidity preference,

Accepted Answer

A)   if the interest rate is below the equilibrium level,then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)   if the interest rate is above the equilibrium level,then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)   the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 20

Critics of stabilization policy argue that

Accepted Answer

A)   policy affects aggregate demand quickly,but the effects on aggregate demand are long-lived.
B)   policy affects aggregate demand with a lag,and the effects on aggregate demand are long-lived.
C)   policy affects aggregate demand with a lag,but the effects are short-lived.
D)   policy does not affect aggregate demand.E) B) and D)
F) All of the above

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

During recessions,taxes tend to

Correct Answer
verified

If there is excess demand for money,then people will

Correct Answer
verified

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Correct Answer
verified

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
verified

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Critics of stabilization policy argue that

Correct Answer
verified

The theory of liquidity preference illustrates the principle that

Correct Answer
verified

When the Fed sells government bonds,the reserves of the banking system

Correct Answer
verified

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct Answer
verified

People are likely to want to hold more money if the interest rate

Correct Answer
verified

When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.

Correct Answer
verified

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Correct Answer
verified

Correct Answer
verified

Open-market purchases

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1.If the current interest rate is 2 percent,

Correct Answer
verified

According to the theory of liquidity preference,

Correct Answer
verified

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

Correct Answer
verified

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Correct Answer
verified

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

During recessions,taxes tend to

Correct AnswerverifiedShow Answer

If there is excess demand for money,then people will

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

When the Fed sells government bonds,the reserves of the banking system

Correct AnswerverifiedShow Answer

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct AnswerverifiedShow Answer

People are likely to want to hold more money if the interest rate

Correct AnswerverifiedShow Answer

When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Open-market purchases

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1.If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

Correct AnswerverifiedShow Answer

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Correct AnswerverifiedShow Answer

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The nominal interest rate on currency is...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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