Question 1

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 2

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

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

Question 3

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 4

The multiplier effect

Accepted Answer

A)   and the crowding-out effect both amplify the effects of an increase in government expenditures.
B)   and the crowding-out effect both diminish the effects of an increase in government expenditures.
C)   diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects.
D)   amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects.E) A) and C)
F) A) and B)

Question 5

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

Question 6

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) A) and C)
F) B) and C)

Question 7

Other things the same,during recessions taxes tend to

Accepted Answer

A)   rise.The rise in taxes stimulates aggregate demand.
B)   rise.The rise in taxes contracts aggregate demand.
C)   fall.The fall in taxes stimulates aggregate demand.
D)   fall.The fall in taxes contracts aggregate demand.E) All of the above
F) C) and D)

Question 8

The interest rate falls if

Accepted Answer

A)   either money demand or money supply shifts right.
B)   money demand shifts right or money supply shifts left.
C)   either money demand or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) B) and C)
F) A) and C)

Question 9

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)   An increase in the price level decreases the interest rate.
B)   An increase in the price level increases the interest rate.
C)   An increase in the money supply decreases the interest rate.
D)   An increase in the money supply increases the interest rate.E) A) and C)
F) All of the above

Question 10

Opponents of active stabilization policy

Accepted Answer

A)   generally don't believe,even in theory,that fiscal policy can stabilize the economy.
B)   generally agree that fiscal policy has no impact in the long run.
C)   believe some effects of monetary policy may be long-lived.
D)   think the Fed should simply try to fine tune the economy.E) A) and B)
F) A) and C)

Question 11

Most economists believe that fiscal policy

Accepted Answer

A)   only affects aggregate demand and not aggregate supply.
B)   primarily affects aggregate demand.
C)   primarily effects aggregate supply.
D)   only affects aggregate supply and not aggregate demand.E) B) and C)
F) A) and C)

Question 12

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 13

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 14

If there is excess money supply,people will

Accepted Answer

A)   deposit more into interest-bearing accounts,and the interest rate will fall.
B)   deposit more 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) All of the above
F) B) and C)

Question 15

According to the theory of liquidity preference,if the interest rate rises

Accepted Answer

A)   people want to hold more money.This response is shown by moving to the right along the money demand curve.
B)   people want to hold more money.This response is shown by shifting the money demand curve right.
C)   people want to hold less money.This response is shown by moving to the left along the money demand curve.
D)   people want to hold less money.This response is shown by shifting the money demand curve left.E) All of the above
F) B) and C)

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct Answer
verified

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct Answer
verified

According to the theory of liquidity preference,if the interest rate rises

Correct Answer
verified

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 Answer
verified

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

The multiplier effect

Correct Answer
verified

The lag problem associated with fiscal policy is due mostly to

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

Other things the same,during recessions taxes tend to

Correct Answer
verified

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Correct Answer
verified

The interest rate falls if

Correct Answer
verified

Most economists believe that fiscal policy

Correct Answer
verified

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
verified

If there is excess money supply,people will

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct AnswerverifiedShow Answer

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,if the interest rate rises

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

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

The lag problem associated with fiscal policy is due mostly to

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

Other things the same,during recessions taxes tend to

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

If there is excess money supply,people will

Correct AnswerverifiedShow 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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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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