Question 1

The most important automatic stabilizer is

Accepted Answer

A)   open-market operations.
B)   the tax system.
C)   unemployment compensation.
D)   welfare benefits.E) B) and C)
F) A) and C)

Question 2

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 C)
F) A) and D)

Question 3

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)   was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive.
B)   was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile.
C)   came from economists who had studied Keynes's ideas when those ideas were only a few years old.
D)   came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.E) All of the above
F) None of the above

Question 4

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th...

Question 5

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. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)   the nominal interest rate
B)   the quantity of money demanded
C)   investment
D)   the expected rate of inflationE) A) and B)
F) A) and C)

Question 6

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)   multiplier effect.
B)   crowding-out effect.
C)   accelerator effect.
D)   Ricardian equivalence effect.E) None of the above
F) A) and B)

Question 7

According to the theory of liquidity preference, a decrease in the price level causes the

Accepted Answer

A)   interest rate and investment to rise.
B)   interest rate and investment to fall.
C)   interest rate to rise and investment to fall.
D)   interest rate to fall and investment to rise.E) B) and C)
F) All of the above

Question 8

According to liquidity preference theory, the money-supply curve is

Accepted Answer

A)   upward sloping.
B)   downward sloping.
C)   vertical.
D)   horizontal.E) C) and D)
F) None of the above

Question 9

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) A) and C)
F) A) and D)

Question 10

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 D)
F) B) and C)

Question 11

The Fed can influence the money supply by

Accepted Answer

A)   changing how much it lends to banks.
B)   changing the interest rate it pays banks on the reserves they are holding.
C)   using open-market operations.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 12

In the long run, fiscal policy influences

Accepted Answer

A)   saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function.
B)   saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.
C)   technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth.
D)   the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.E) C) and D)
F) B) and D)

Question 13

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

Question 14

Which among the following assets is the most liquid?

Accepted Answer

A)   corporate bonds
B)   fine art
C)   deposits that can be withdrawn using ATMs
D)   shares of stockE) All of the above
F) A) and D)

Question 15

Which among the following assets is the most liquid?

Accepted Answer

A)   capital goods
B)   stocks and bonds with a low risk
C)   real estate
D)   funds in a checking accountE) All of the above
F) C) and D)

Question 16

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)   shortage in the money market, so people will want to sell bonds.
B)   shortage in the money market, so people will want to buy bonds.
C)   surplus in the money market, so people will want to sell bonds.
D)   surplus in the money market, so people will want to buy bonds.E) None of the above
F) A) and B)

Question 17

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)   increase by $250 billion.
B)   increase by $333 billion.
C)   increase by $360 billion.
D)   None of the above are correct.E) B) and C)
F) A) and D)

Question 18

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

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

Question 19

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 20

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)   Money demand shifts rightward.
B)   Initially there is an excess demand for money in the money market.
C)   The interest rate rises.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The most important automatic stabilizer is

Correct Answer
verified

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct Answer
verified

The Fed can influence the money supply by

Correct Answer
verified

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct Answer
verified

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

Correct Answer
verified

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

Which among the following assets is the most liquid?

Correct Answer
verified

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct Answer
verified

If the Federal Reserve increases the money supply, then initially there is a

Correct Answer
verified

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

Correct Answer
verified

According to the theory of liquidity preference, a decrease in the price level causes the

Correct Answer
verified

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct Answer
verified

According to liquidity preference theory, the money-supply curve is

Correct Answer
verified

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

Correct Answer
verified

Other things the same, which of the following happens if the price level rises?

Correct Answer
verified

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Correct Answer
verified

Correct Answer
verified

In the long run, fiscal policy influences

Correct Answer
verified

During recessions, taxes tend to

Correct Answer
verified

Which among the following assets is the most liquid?

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The most important automatic stabilizer is

Correct AnswerverifiedShow Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by

Correct AnswerverifiedShow Answer

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

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

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Correct AnswerverifiedAs consumers become pessimistic about th...View AnswerShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially there is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, a decrease in the price level causes the

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the money-supply curve is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, which of the following happens if the price level rises?

Correct AnswerverifiedShow Answer

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the long run, fiscal policy influences

Correct AnswerverifiedShow Answer

During recessions, taxes tend to

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

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As consumers become pessimistic about th...
View Answer

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