Question 1

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 2

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 3

According to John Maynard Keynes,

Accepted Answer

A)   the demand for money in a country is determined entirely by that nation's central bank.
B)   the supply of money in a country is determined by the overall wealth of the citizens of that country.
C)   the interest rate adjusts to balance the supply of, and demand for, money.
D)   the interest rate adjusts to balance the supply of, and demand for, goods and services.E) A) and B)
F) B) and C)

Question 4

Scenario 34-1. Take the following information as given for a small, imaginary economy:
-When income is $10,000, consumption spending is $6,500.
-When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Accepted Answer

A)   0.650.
B)   0.750.
C)   0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)   0.800.E) B) and C)
F) All of the above

Question 5

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)   liquidity preference.
B)   liquidity trap.
C)   open-market trap.
D)   interest-rate contraction.E) B) and D)
F) B) and C)

Question 6

If the multiplier is 6, then the MPC is

Accepted Answer

A)   0.16.
B)   0.83.
C)   0.71.
D)   0.86.E) C) and D)
F) B) and C)

Question 7

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

Question 8

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   decrease the money supply
B)   increase government expenditures
C)   increase taxes
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 9

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)   increases, interest rates increase, and investment decreases.
B)   increases, interest rates decrease, and investment increases.
C)   decreases, interest rates increase, and investment increases.
D)   decreases, interest rates decrease, and investment decreases.E) B) and C)
F) None of the above

Question 10

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)   Keynesian in nature, and that his view is more valid for the long run than for the short run.
B)   classical in nature, and that his view is more valid for the long run than for the short run.
C)   Keynesian in nature, and that his view is more valid for the short run than for the long run.
D)   classical in nature, and that his view is more valid for the short run than for the long run.E) B) and D)
F) C) and D)

Question 11

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 12

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Accepted Answer

A)   the accelerator effect.
B)   the multiplier effect.
C)   the chain effect.
D)   the bandwagon effect.E) None of the above
F) All of the above

Question 13

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Accepted Answer

A)   the multiplier is probably zero.
B)   the multiplier is probably equal to one.
C)   the multiplier is probably greater than one.
D)   the multiplier is probably less than one.E) A) and B)
F) None of the above

Question 14

According to liquidity preference theory, an increase in the price level shifts the

Accepted Answer

A)   money demand curve rightward, so the interest rate increases.
B)   money demand curve rightward, so the interest rate decreases.
C)   money demand curve leftward, so the interest rate decreases.
D)   money demand curve leftward, so the interest rate increases.E) None of the above
F) A) and B)

Question 15

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)   shifts the aggregate demand curve to the right.
B)   has a multiplier effect.
C)   shifts the aggregate supply curve to the right, but this effect is likely more important in the long run.
D)   All of the above are correct.E) A) and C)
F) B) and D)

Question 16

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 D)
F) C) and D)

Question 17

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

A)   the multiplier effect
B)   the crowding-out effect
C)   the accelerator effect
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 18

Most recessions and depressions

Accepted Answer

A)   are accurately forecasted.
B)   usually occur with ample advance warning.
C)   cause falling unemployment.
D)   occur with little advance warning.E) C) and D)
F) B) and C)

Question 19

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

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) C) and D)
F) A) and B)

Question 20

The wealth effect stems from the idea that a higher price level

Accepted Answer

A)   increases the real value of households' money holdings.
B)   decreases the real value of households' money holdings.
C)   increases the real value of the domestic currency in foreign-exchange markets.
D)   decreases the real value of the domestic currency in foreign-exchange markets.E) C) and D)
F) B) and D)

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

The most important reason for the slope of the aggregate-demand curve is that as the price level

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According to liquidity preference theory, an increase in the price level shifts the

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Most recessions and depressions

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According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If there is excess demand for money, then people will

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

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An increase in government spending on goods to build or repair infrastructure

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If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Correct AnswerverifiedShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

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Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Correct AnswerverifiedShow Answer

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Correct AnswerverifiedShow Answer

According to John Maynard Keynes,

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The interest rate falls if

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If the multiplier is 6, then the MPC is

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The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Correct AnswerverifiedShow Answer

The wealth effect stems from the idea that a higher price level

Correct AnswerverifiedShow Answer

Scenario 34-1. Take the following information as given for a small, imaginary economy: -When income is $10,000, consumption spending is $6,500. -When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct AnswerverifiedShow Answer

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According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

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