Question 1

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

Accepted Answer

A)   r = 0.03, P = 1.2
B)   r = 0.03, P = 1.3
C)   r = 0.04, P = 1.2
D)   r = 0.05, P = 0.9E) None of the above
F) A) and D)

Question 2

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) A) and D)
F) B) and C)

Question 3

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

Question 4

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Accepted Answer

A)   increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending.
B)   increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
C)   decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending.
D)   decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.E) None of the above
F) A) and B)

Question 5

Changes in the interest rate

Accepted Answer

A)   shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
B)   shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy.
C)   shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.
D)   do not shift aggregate demand.E) None of the above
F) A) and D)

Question 6

If the Fed conducts open-market sales, which of the following quantities increase(s) ?

Accepted Answer

A)   interest rates, prices, and investment spending
B)   interest rates and prices, but not investment spending
C)   interest rates and investment, but not prices
D)   interest rates, but not investment or pricesE) B) and D)
F) None of the above

Question 7

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   the real-wage effectE) None of the above
F) A) and D)

Question 8

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Accepted Answer

A)   buy bonds to raise interest rates.
B)   buy bonds to lower interest rates.
C)   sell bonds to raise interest rates.
D)   sell bonds to lower interest rates.E) C) and D)
F) A) and D)

Question 9

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Accepted Answer

A)   buying bonds to increase the money supply
B)   buying bonds to decrease the money supply.
C)   selling bonds to increase the money supply.
D)   selling bonds to decrease the money supply.E) None of the above
F) A) and D)

Question 10

If taxes

Accepted Answer

A)   increase, then consumption increases, and aggregate demand shifts rightward.
B)   increase, then consumption decreases, and aggregate demand shifts leftward.
C)   decrease, then consumption increases, and aggregate demand shifts leftward.
D)   decrease, then consumption decreases, and aggregate demand shifts rightward.E) None of the above
F) B) and D)

Question 11

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int...

Question 12

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)   increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
B)   decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded.
C)   increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.
D)   decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.E) None of the above
F) All of the above

Question 13

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)   the wealth effect.
B)   the exchange-rate effect.
C)   the interest-rate effect.
D)   misperceptions theory.E) A) and D)
F) None of the above

Question 14

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 C)
F) All of the above

Question 15

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

Accepted Answer

A)   interest rate and investment to rise.
B)   interest rate and investment to fall.
C)   interest rate to rise and investment to fall.
D)   interest rate to fall and investment to rise.E) B) and C)
F) All of the above

Question 16

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)   An increase in government expenditures decreases the interest rate and so increases investment spending.
B)   An increase in government expenditures increases the interest rate and so reduces investment spending.
C)   A decrease in government expenditures increases the interest rate and so increases investment spending.
D)   A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) None of the above
F) B) and D)

Question 17

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)   changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) None of the above
F) All of the above

Question 18

The Fed can influence the money supply by

Accepted Answer

A)   changing how much it lends to banks.
B)   changing the interest rate it pays banks on the reserves they are holding.
C)   using open-market operations.
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 19

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Accepted Answer

A)   $151.25.
B)   $166.75.
C)   $170.20.
D)   $175.00.E) None of the above
F) B) and D)

Question 20

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by

Correct AnswerverifiedShow Answer

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases, the int...View AnswerShow Answer

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Correct AnswerverifiedShow Answer

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Correct AnswerverifiedShow Answer

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales, which of the following quantities increase(s) ?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

Which of the following correctly explains the crowding-out effect?

Correct AnswerverifiedShow Answer

If taxes

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

Correct AnswerverifiedShow Answer

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

Changes in the interest rate

Correct AnswerverifiedShow Answer

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When the money supply increases, the int...
View Answer

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