Question 1

Supply-side economists focus more than other economists on

Accepted Answer

A)   how fiscal policy affects consumption.
B)   the multiplier effect of fiscal policy.
C)   how fiscal policy affects aggregate supply.
D)   the money supply.E) B) and C)
F) A) and C)

Question 2

If the inflation rate is zero, then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 3

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases,...

Question 4

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) C) and D)

Question 5

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

Question 6

Figure 34-3 
-Refer to Figure 34-3. Which of the following sequences (numbered arrows)  shows the logic of the interest-rate effect?

Accepted Answer

A)   1, 2, 3, 4
B)   1, 4, 3, 2
C)   3, 4, 2, 1
D)   3, 2, 1, 4E) A) and D)
F) None of the above

Question 7

A decrease in government spending initially and primarily shifts

Accepted Answer

A)   aggregate demand to the right.
B)   aggregate demand to the left.
C)   aggregate supply to the right.
D)   neither aggregate demand nor aggregate supply.E) A) and B)
F) A) and C)

Question 8

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) None of the above
F) All of the above

Question 9

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) A) and B)
F) A) and D)

Question 10

Which of the following statements is correct for the short run?

Accepted Answer

A)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) A) and B)
F) C) and D) C

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Figure 34-3 
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) B) and D)
F) All of the above

Question 13

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 left, 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) B) and C)
F) A) and D)

Question 14

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If people decide to hold less money, then

Accepted Answer

A)   money demand decreases, there is an excess supply of money, and interest rates rise.
B)   money demand decreases, there is an excess supply of money, and interest rates fall.
C)   money demand increases, there is an excess demand for money, and interest rates fall.
D)   money demand increases, there is an excess demand for money, and interest rates rise.E) B) and D)
F) B) and C)

Question 17

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. monetary policy. It consists of policies to affect the financial side of the economy-most notably the supply of money in the economy. Fiscal policy is conducted by the executive and legislative branches of government, and entails decisions about taxes and government spending.

Question 18

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)   left by $60 billion.
B)   left by $36 billion.
C)   right by $68 billion.
D)   right by $36 billion.E) B) and C)
F) B) and D)

Question 19

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)   the MPC is large and if the tax cut is permanent.
B)   the MPC is large and if the tax cut is temporary.
C)   the MPC is small and if the tax cut is permanent.
D)   the MPC is small and if the tax cut is temporary.E) B) and C)
F) A) and D) A

Question 20

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

Accepted Answer

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

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

Supply-side economists focus more than other economists on

Correct Answer
verified

If the inflation rate is zero, then the nominal and real interest rate are the same.

Correct Answer
verified

A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases,...
View Answer

According to the theory of liquidity preference,

Correct Answer
verified

The multiplier effect

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

A decrease in government spending initially and primarily shifts

Correct Answer
verified

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

Correct Answer
verified

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct Answer
verified

Which of the following statements is correct for the short run?

Correct Answer
verified
C

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

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct Answer
verified

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

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

If people decide to hold less money, then

Correct Answer
verified

What is the difference between monetary policy and fiscal policy?

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct Answer
verified

A tax cut shifts the aggregate demand curve the farthest if

Correct Answer
verified
A

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

Correct Answer
verified

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

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

If the inflation rate is zero, then the nominal and real interest rate are the same.

Correct AnswerverifiedShow Answer

A decrease in taxes ____ aggregate demand through larger _____ by households.

Correct Answerverifiedincreases,...View AnswerShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

A decrease in government spending initially and primarily shifts

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the short run?

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

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

If people decide to hold less money, then

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedA

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified