Question 1

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 2

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)   3.2 for government purchases and 2.0 for tax cuts.
B)   2.4 for government purchases and 1.4 for tax cuts.
C)   1.6 for government purchases and 1.0 for tax cuts.
D)   1.6 for government purchases and 0.4 for tax cuts.E) A) and C)
F) B) and D)

Question 3

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 4

Tax increases

Accepted Answer

A)   and increases in government expenditures shift aggregate demand right.
B)   and increases in government expenditures shift aggregate demand left.
C)   shift aggregate demand right while increases in government expenditures shift aggregate demand left.
D)   shift aggregate demand left while increases in government expenditures shift aggregate demand right.E) None of the above
F) All of the above

Question 5

According to classical macroeconomic theory,

Accepted Answer

A)   the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)   for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)   output is determined by the supplies of capital and labor and the available production technology.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 6

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) C) and D)
F) B) and D)

Question 7

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) C) and D)
F) B) and C)

Question 8

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Accepted Answer

A)   increase the money supply by buying bonds.
B)   increase the money supply by selling bonds.
C)   decrease the money supply by buying bonds.
D)   increase the money supply by selling bonds.E) A) and C)
F) All of the above

Question 9

The logic of the multiplier effect applies

Accepted Answer

A)   only to changes in government spending.
B)   to any change in spending on any component of GDP.
C)   only to changes in the money supply.
D)   only when the crowding-out effect is sufficiently strong.E) A) and B)
F) A) and C)

Question 10

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)   the demand-for-money curve is vertical.
B)   the supply-of-money curve is vertical.
C)   the interest rate is measured along the horizontal axis.
D)   the price level is measured along the vertical axis.E) A) and B)
F) A) and C)

Question 11

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Accepted Answer

liquidity ...

Question 12

If the Federal Reserve decreases 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) B) and D)
F) A) and C)

Question 13

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve...

Question 14

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 15

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A)   smaller in closed economies than in open economies.
B)   larger in closed economies than in open economies.
C)   smaller in capitalist economies than in socialist economies.
D)   larger in capitalist economies than in socialist economies.E) A) and D)
F) All of the above

Question 16

Which of the following statements is correct?

Accepted Answer

A)   Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium.
B)   Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium.
C)   Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium.
D)   Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.E) C) and D)
F) A) and C)

Question 17

When the Fed buys government bonds, the reserves of the banking system

Accepted Answer

A)   increase, so the money supply increases.
B)   increase, so the money supply decreases.
C)   decrease, so the money supply increases.
D)   decrease, so the money supply decreases.E) A) and C)
F) C) and D)

Question 18

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 19

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.E) B) and D)
F) All of the above

Question 20

If the multiplier is 5.25, then the MPC is

Accepted Answer

A)   0.19.
B)   0.68.
C)   0.81.
D)   0.84.E) B) and C)
F) A) and D)

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

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Correct AnswerverifiedShow Answer

If the multiplier is 5.25, then the MPC is

Correct AnswerverifiedShow Answer

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Correct Answerverifiedliquidity ...View AnswerShow Answer

If it were not for the automatic stabilizers in the U.S. economy,

Correct AnswerverifiedShow Answer

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Correct AnswerverifiedShow Answer

When the Fed buys government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

Supply-side economists believe that changes in government purchases affect

Correct AnswerverifiedShow Answer

Tax increases

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow 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

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Correct Answerverifiedprice leve...View AnswerShow Answer

The logic of the multiplier effect applies

Correct AnswerverifiedShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

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The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

Correct Answer
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liquidity ...
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The wealth effect and the exchange-rate ...
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A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
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price leve...
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Correct Answer
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Correct Answer
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The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
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