Question 1

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)   $60 billion,but the effect would be larger if there were an investment accelerator.
B)   $60 billion,but the effect would be smaller if there were an investment accelerator.
C)   $120 billion,but the effect would be larger if there were an investment accelerator.
D)   $120 billion,but the effect would be smaller if there were an investment accelerator.E) C) and D)
F) None of the above

Question 2

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...

Question 3

Sometimes during wars,government expenditures are larger than normal.To reduce the effects this spending creates on interest rates,

Accepted Answer

A)   the Federal Reserve could increase the money supply by buying bonds.
B)   the Federal Reserve could increase the money supply by selling bonds.
C)   the Federal Reserve could decrease the money supply by buying bonds.
D)   the Federal Reserve could decrease the money supply by selling bonds.E) B) and C)
F) C) and D)

Question 4

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 5

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 6

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu...

Question 7

People will want to hold more money if the price level

Accepted Answer

A)   or if the interest rate increases.
B)   or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) A) and B)
F) A) and C)

Question 8

Other things the same,a decrease in the U.S.interest rate

Accepted Answer

A)   induces firms to invest more.
B)   shifts money demand to the left.
C)   makes the U.S.dollar appreciate.
D)   increases the opportunity cost of holding dollars.E) All of the above
F) C) and D)

Question 9

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 10

Keynes argued that aggregate demand is

Accepted Answer

A)   stable,because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand.
B)   stable,because changes in consumption are mostly offset by changes in investment and vice versa.
C)   unstable,because waves of pessimism and optimism create fluctuations in aggregate demand.
D)   unstable,because of long and variable policy lags that worsen economic fluctuations.E) A) and C)
F) B) and C)

Question 11

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)   the money supply of a given increase in government purchases.
B)   tax revenues of a given increase in government purchases.
C)   investment of a given increase in interest rates.
D)   aggregate demand of a given increase in government purchases.E) C) and D)
F) B) and D)

Question 12

According to the theory of liquidity preference,the money supply

Accepted Answer

A)   and money demand are positively related to the interest rate.
B)   and money demand are negatively related to the interest rate.
C)   is negatively related to the interest rate while money demand is positively related to the interest rate.
D)   is independent of the interest rate,while money demand is negatively related to the interest rate.E) None of the above
F) All of the above

Question 13

The opportunity cost of holding money

Accepted Answer

A)   decreases when the interest rate increases,so people desire to hold more of it.
B)   decreases when the interest rate increases,so people desire to hold less of it.
C)   increases when the interest rate increases,so people desire to hold more of it.
D)   increases when the interest rate increases,so people desire to hold less of it.E) All of the above
F) C) and D)

Question 14

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)   Jim increases his consumption spending.
B)   Firms sell fewer shares of new stock.
C)   Firms spend less on investment.
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 15

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 graphs apply to an economy such as the U.S.economy,then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)   wealth effect.
B)   interest-rate effect.
C)   exchange-rate effect.
D)   Fisher effect.E) A) and C)
F) None of the above

Question 16

In the long run,changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) None of the above
F) C) and D)

Question 17

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)   An increase in government expenditures decreases the interest rate and so increases investment spending.
B)   An increase in government expenditures increases the interest rate and so reduces investment spending.
C)   A decrease in government expenditures increases the interest rate and so increases investment spending.
D)   A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) A) and B)
F) None of the above

Question 18

An aide to a U.S.Senator computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)   The actual MPC was larger than the MPC the aide used to compute the multiplier.
B)   The aide thought the tax cut would be permanent,but the actual tax cut was temporary.
C)   The increase in income shifted money demand less than the aide had anticipated.
D)   The increase in income resulted in investment rising more than the aide had anticipated.E) A) and B)
F) None of the above

Question 19

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

Question 20

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls,unemployment rises.More ...

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

Which of the following correctly explains the crowding-out effect?

Correct Answer
verified

Explain how unemployment insurance acts as an automatic stabilizer.

Correct Answer
verified
As income falls,unemployment rises.More ...
View Answer

Which of the following actions might we logically expect to result from rising stock prices?

Correct Answer
verified

The Kennedy tax cut of 1964 was

Correct Answer
verified

The opportunity cost of holding money

Correct Answer
verified

In the long run,changes in the money supply affect

Correct Answer
verified

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct Answer
verified
If the interest rate is above equilibriu...
View 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 Answer
verified

Correct Answer
verified

People will want to hold more money if the price level

Correct Answer
verified

Keynes argued that aggregate demand is

Correct Answer
verified

Other things the same,a decrease in the U.S.interest rate

Correct Answer
verified

The multiplier effect is exemplified by the multiplied impact on

Correct Answer
verified

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct Answer
verified
The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...
View Answer

Sometimes during wars,government expenditures are larger than normal.To reduce the effects this spending creates on interest rates,

Correct Answer
verified

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 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

According to the theory of liquidity preference,the money supply

Correct Answer
verified

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

An aide to a U.S.Senator computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Correct Answer
verified

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

Which of the following correctly explains the crowding-out effect?

Correct AnswerverifiedShow Answer

Explain how unemployment insurance acts as an automatic stabilizer.

Correct AnswerverifiedAs income falls,unemployment rises.More ...View AnswerShow Answer

Which of the following actions might we logically expect to result from rising stock prices?

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 was

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

In the long run,changes in the money supply affect

Correct AnswerverifiedShow Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct AnswerverifiedIf the interest rate is above equilibriu...View AnswerShow 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

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

Keynes argued that aggregate demand is

Correct AnswerverifiedShow Answer

Other things the same,a decrease in the U.S.interest rate

Correct AnswerverifiedShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/(1-MPC)= 1/(1-.8)= 1...View AnswerShow Answer

Sometimes during wars,government expenditures are larger than normal.To reduce the effects this spending creates on interest rates,

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

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

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,the money supply

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

An aide to a U.S.Senator computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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As income falls,unemployment rises.More ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If the interest rate is above equilibriu...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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