Question 1

Monetary policy

Accepted Answer

A)   must be described in terms of interest-rate targets.
B)   must be described in terms of money-supply targets.
C)   can be described either in terms of the money supply or in terms of the interest rate.
D)   cannot be accurately described in terms of the interest rate or in terms of the money supply.E) A) and B)
F) B) and C)

Question 2

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)   increase money demand and interest rates. Investment declines.
B)   increase money demand and interest rates. Investment increases.
C)   increase money demand, reduce interest rates, and investment increases.
D)   decrease money demand and interest rates. Investment declines.E) B) and D)
F) B) and C)

Question 3

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

Accepted Answer

A)   falls by more than the change in the nominal interest rate.
B)   falls by the change in the nominal interest rate.
C)   rises by the change in the nominal interest rate.
D)   rises by more than the change in the nominal interest rate.E) All of the above
F) B) and C)

Question 4

An increase in government spending shifts aggregate demand

Accepted Answer

A)   to the right. The larger the multiplier is, the farther it shifts.
B)   to the right. The larger the multiplier is, the less it shifts.
C)   to the left. The larger the multiplier is, the farther it shifts.
D)   to the left. The larger the multiplier is, the less it shifts.E) None of the above
F) All of the above

Question 5

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor...

Question 6

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) C) and D)
F) B) and C)

Question 7

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 8

When Congress reduces spending in order to balance the government's budget, it needs to consider

Accepted Answer

A)   both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.
B)   only the short-run effects on aggregate demand and aggregate supply.
C)   only the long-run effects on saving and growth.
D)   only the long-run effects on aggregate demand and aggregate supply.E) All of the above
F) A) and C)

Question 9

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

decrease t...

Question 10

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Accepted Answer

Automatic ...

Question 11

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)   $60 billion, but the effect would be larger if there were an investment accelerator.
B)   $60 billion, but the effect would be smaller if there were an investment accelerator.
C)   $45 billion, but the effect would be larger if there were an investment accelerator.
D)   $45 billion, but the effect would be smaller if there were an investment accelerator.E) All of the above
F) A) and C)

Question 12

The marginal propensity to consume (MPC)  is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) A) and B)
F) A) and C)

Question 13

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

The answer of The idea that aggregate demand fluctuates due...

Question 14

Suppose there is a tax increase. To 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) B) and C)
F) None of the above

Question 15

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 16

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

Accepted Answer

A)   reduce interest rates by increasing the money supply.
B)   increase interest rates by decreasing the money supply.
C)   increase interest rates by increasing the money supply.
D)   reduce interest rates by decreasing the money supply.E) B) and D)
F) A) and B)

Question 17

People choose to hold a larger quantity of money if

Accepted Answer

A)   the interest rate rises, which causes the opportunity cost of holding money to rise.
B)   the interest rate falls, which causes the opportunity cost of holding money to rise.
C)   the interest rate rises, which causes the opportunity cost of holding money to fall.
D)   the interest rate falls, which causes the opportunity cost of holding money to fall.E) A) and D)
F) A) and C)

Question 18

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) C) and D)
F) B) and D)

Question 19

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. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)   The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
B)   An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
C)   A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
D)   An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.E) A) and D)
F) A) and C)

Question 20

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)   $1480
B)   $480
C)   $160
D)   None of the above is correct.E) A) and C)
F) B) and C)

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

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

Correct Answer
verified

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct Answer
verified

Monetary policy

Correct Answer
verified

The marginal propensity to consume (MPC) is defined as the fraction of

Correct Answer
verified

Correct Answer
verified

An increase in government spending shifts aggregate demand

Correct Answer
verified

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct Answer
verified

In the short run,

Correct Answer
verified

The is the most important automatic stabilizer.

Correct Answer
verified

Supply-side economists believe that a reduction in the tax rate

Correct Answer
verified

When Congress reduces spending in order to balance the government's budget, it needs to consider

Correct Answer
verified

Explain how unemployment insurance acts as an automatic stabilizer.

Correct Answer
verified
As income falls, unemployment rises. Mor...
View Answer

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

Correct Answer
verified

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Correct Answer
verified
Automatic ...
View Answer

People choose to hold a larger quantity of money if

Correct Answer
verified

According to the interest-rate effect, an increase in the price level will

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Correct Answer
verified
decrease t...
View Answer

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

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

Correct AnswerverifiedShow Answer

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

The marginal propensity to consume (MPC) is defined as the fraction of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in government spending shifts aggregate demand

Correct AnswerverifiedShow Answer

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

The is the most important automatic stabilizer.

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

When Congress reduces spending in order to balance the government's budget, it needs to consider

Correct AnswerverifiedShow Answer

Explain how unemployment insurance acts as an automatic stabilizer.

Correct AnswerverifiedAs income falls, unemployment rises. Mor...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Correct AnswerverifiedAutomatic ...View AnswerShow Answer

People choose to hold a larger quantity of money if

Correct AnswerverifiedShow Answer

According to the interest-rate effect, an increase in the price level will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifieddecrease t...View AnswerShow Answer

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Correct Answer
verified
As income falls, unemployment rises. Mor...
View Answer

Correct Answer
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Correct Answer
verified
Automatic ...
View Answer

Correct Answer
verified

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
verified
decrease t...
View Answer