Question 1

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. Under the assumptions of the model,

Accepted Answer

A)   the real interest rate is lower at Y2 than it is at Y1.
B)   the quantity of money is the same at Y1 as it is at Y2.
C)   the price level is lower at r2 than it is at r1.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 2

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)   the interest rate to fall, so aggregate demand shifts right.
B)   the interest rate to fall, so aggregate demand shifts left.
C)   the interest rate to rise, so aggregate demand shifts right.
D)   the interest rate to rise, so aggregate demand shifts left.E) A) and D)
F) All of the above

Question 3

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) A) and B)
F) B) and D)

Question 4

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

Question 5

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
B)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand.
C)   $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
D)   $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.E) A) and C)
F) A) and B)

Question 6

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A)   MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.
B)   MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures
C)   MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 7

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)   $283 billion and $254.7 billion
B)   $283 billion and $283 billion
C)   $300 billion and $270 billion
D)   $300 billion and $300 billionE) A) and B)
F) None of the above

Question 8

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 C)

Question 9

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it 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) B) and C)
F) A) and C)

Question 10

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) A) and B)
F) A) and D)

Question 11

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

A)   buy bonds to raise the interest rate.
B)   buy bonds to lower the interest rate
C)   sell bonds to raise the interest rate.
D)   sell bonds to raise the interest rateE) A) and D)
F) None of the above

Question 12

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) All of the above
F) C) and D)

Question 13

When taxes increase, the interest rate

Accepted Answer

A)   increases, making the change in aggregate demand larger.
B)   increases, making the change in aggregate demand smaller
C)   decreases, making the change in aggregate demand larger.
D)   decreases, making the change in aggregate demand smaller.E) All of the above
F) A) and B)

Question 14

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 r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then

Accepted Answer

A)   there will be an increase in the equilibrium quantity of goods and services demanded.
B)   there will be a decrease in the equilibrium interest rate.
C)   the aggregate-demand curve will shift to the right.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) B) and D)
F) C) and D)

Question 15

When there is an increase in government expenditures, which of the following raises investment spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither the investment accelerator or crowding outE) C) and D)
F) A) and C)

Question 16

Because the liquidity-preference framework focuses on the

Accepted Answer

A)   short run, it assumes the price level adjusts to bring the money market to equilibrium.
B)   short run, it assumes the interest rate adjusts to bring the money market to equilibrium.
C)   long run, it assumes the price level adjusts to bring the money market to equilibrium.
D)   long run, it assumes the interest rate adjusts to bring the money market to equilibrium.E) None of the above
F) A) and D)

Question 17

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 18

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

output, pr...

Question 19

Figure 34-11 
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Accepted Answer

government...

Question 20

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)   increase taxes or increase the money supply
B)   increase taxes or decrease the money supply
C)   decrease taxes or increase the money supply
D)   decrease taxes or decrease the money supplyE) A) and C)
F) A) and B)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct Answer
verified

Because the liquidity-preference framework focuses on the

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
verified
output, pr...
View 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 Answer
verified

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

Correct Answer
verified

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct Answer
verified

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct Answer
verified

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

Correct Answer
verified
government...
View Answer

If the interest rate is below the Fed's target, the Fed would

Correct Answer
verified

When taxes increase, the interest rate

Correct Answer
verified

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct Answer
verified

When there is an increase in government expenditures, which of the following raises investment spending?

Correct Answer
verified

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct Answer
verified

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Correct Answer
verified

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 Answer
verified

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct Answer
verified

Correct Answer
verified

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct AnswerverifiedShow Answer

Because the liquidity-preference framework focuses on the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Correct Answerverifiedoutput, pr...View AnswerShow 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

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

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Correct Answerverifiedgovernment...View AnswerShow Answer

If the interest rate is below the Fed's target, the Fed would

Correct AnswerverifiedShow Answer

When taxes increase, the interest rate

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

When there is an increase in government expenditures, which of the following raises investment spending?

Correct AnswerverifiedShow Answer

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct AnswerverifiedShow Answer

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

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

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
verified
output, pr...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

Correct Answer
verified
government...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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
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Correct Answer
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