Question 1

The interest rate falls if

Accepted Answer

A)   the price level falls or the money supply falls.
B)   the price level falls or the money supply rises.
C)   the price level rises or the money supply falls.
D)   the price level rises or the money supply rises.E) None of the above
F) A) and B)

Question 2

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)   the money supply of a given increase in government purchases.
B)   tax revenues of a given increase in government purchases.
C)   investment of a given increase in interest rates.
D)   aggregate demand of a given increase in government purchases.E) All of the above
F) A) and B)

Question 3

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)   policy makers harming the economy in the pursuit of self interest.
B)   arbitrary changes in attitudes of household and firms.
C)   mean-spirited economists who believed in the classical dichotomy.
D)   firms' relentless efforts to maximize profits.E) A) and B)
F) A) and C)

Question 4

Keynes argued that

Accepted Answer

A)   irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.
B)   irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply.
C)   changes in business and consumer expectations generally stabilize the economy.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 5

Which particular interest rate(s)  do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)   only the nominal interest rate
B)   both the nominal interest rate and the real interest rate
C)   only the interest rate on long-term bonds
D)   only the interest rate on short-term government bondsE) B) and C)
F) B) and D)

Question 6

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. What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)   the quantity of money
B)   the rate of inflation
C)   real output
D)   nominal outputE) B) and D)
F) All of the above

Question 7

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)   6/5, so a $200 increase in government spending increases aggregate demand by $240.
B)   5, so a $200 increase in government spending increases aggregate supply by $1000.
C)   6, so a $200 increase in government spending increases aggregate demand by $1200.
D)   6/5, so a $200 increase in government spending increases aggregate supply by $1200.E) None of the above
F) A) and B)

Question 8

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)   size of the money supply.
B)   growth rate of the money supply.
C)   federal funds rate.
D)   discount rate.E) None of the above
F) A) and B)

Question 9

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need ...

Question 10

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand increases.
C)   The price level decreases.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 11

An increase in the MPC

Accepted Answer

A)   increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
B)   increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.
C)   decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
D)   decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.E) All of the above
F) C) and D)

Question 12

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)   r = 0.06, P = 1.2
B)   r = 0.05, P = 1.0
C)   r = 0.04, P = 1.2
D)   r = 0.06, P = 1.0E) B) and D)
F) A) and B)

Question 13

When the Fed decreases the money supply, we expect

Accepted Answer

A)   interest rates and stock prices to rise.
B)   interest rates and stock prices to fall.
C)   interest rates to rise and stock prices to fall.
D)   interest rates to fall and stock prices to rise.E) C) and D)
F) None of the above

Question 14

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Accepted Answer

A)   reduces investment and thereby increases consumer spending.
B)   increases the money supply and thereby reduces interest rates.
C)   increases income and thereby increases consumer spending.
D)   decreases income and thereby increases consumer spending.E) A) and B)
F) All of the above

Question 15

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)   An increase in the price level decreases the interest rate.
B)   An increase in the price level increases the interest rate.
C)   An increase in the money supply decreases the interest rate.
D)   An increase in the money supply increases the interest rate.E) B) and C)
F) A) and C)

Question 16

An increase in the U.S. interest rate

Accepted Answer

A)   raises the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to a depreciation of the U.S. dollar.E) All of the above
F) B) and D)

Question 17

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 18

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A)   people want to hold more money. This response is shown by moving to the right along the money demand curve.
B)   people want to hold more money. This response is shown by shifting the money demand curve right.
C)   people want to hold less money. This response is shown by moving to the left along the money demand curve.
D)   people want to hold less money. This response is shown by shifting the money demand curve left.E) A) and D)
F) B) and C)

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. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?

Accepted Answer

A)   When r = r2, nominal output is higher than it is when r = r1.
B)   When r = r2, real output is higher than it is when r = r1.
C)   When r = r2, the expected rate of inflation is higher than it is when r = r1.
D)   If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.E) B) and C)
F) B) and D)

Question 20

A tax cut shifts aggregate demand

Accepted Answer

A)   by more than the amount of the tax cut.
B)   by the same amount as the tax cut.
C)   by less than the tax cut.
D)   None of the above is necessarily correct.E) C) and D)
F) A) and D)

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

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Correct Answer
verified

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Correct Answer
verified

According to the theory of liquidity preference, if the interest rate rises

Correct Answer
verified

The interest rate falls if

Correct Answer
verified

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

The multiplier effect is exemplified by the multiplied impact on

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
verified

An increase in the U.S. interest rate

Correct Answer
verified

Correct Answer
verified

An increase in the MPC

Correct Answer
verified

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct Answer
verified
When the price level falls, people need ...
View Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

Keynes argued that

Correct Answer
verified

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct Answer
verified

Keynes used the term "animal spirits" to refer to

Correct Answer
verified

A tax cut shifts aggregate demand

Correct Answer
verified

If the MPC is 5/6 then the multiplier is

Correct Answer
verified

Correct Answer
verified

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified

When the Fed decreases the money supply, we expect

Correct Answer
verified

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

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Correct AnswerverifiedShow Answer

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if the interest rate rises

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the MPC

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls, people need ...View AnswerShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Correct AnswerverifiedShow Answer

Keynes argued that

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct AnswerverifiedShow Answer

Keynes used the term "animal spirits" to refer to

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

If the MPC is 5/6 then the multiplier is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Correct AnswerverifiedShow Answer

When the Fed decreases the money supply, we expect

Correct AnswerverifiedShow Answer

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
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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
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When the price level falls, people need ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified

Correct Answer
verified