Question 1

Which of the following effects results from the change in the interest rate created by an increase in government 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 crowding out nor the investment acceleratorE) A) and B)
F) B) and D)

Question 2

When the interest rate is above the equilibrium level,

Accepted Answer

A)   the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)   people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 3

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Accepted Answer

A)   purchase government bonds, which will increase the money supply.
B)   purchase government bonds, which will reduce the money supply.
C)   sell government bonds, which will increase the money supply.
D)   sell government bonds, which will reduce the money supply.E) A) and B)
F) B) and D)

Question 4

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Accepted Answer

supply, pu...

Question 5

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) B) and D)
F) A) and B)

Question 6

In the long run, changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) C) and D)
F) A) and D)

Question 7

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of determining monetary policy.
C)   the time it takes for changes in government spending to affect the interest rate.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 8

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

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) A) and D)
F) B) and C)

Question 9

If there is excess money supply, people will

Accepted Answer

A)   deposit more into interest-bearing accounts, and the interest rate will fall.
B)   deposit more into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) A) and B)
F) B) and C)

Question 10

Opponents of active stabilization policy

Accepted Answer

A)   generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)   generally agree that fiscal policy has no impact in the long run.
C)   believe some effects of monetary policy may be long-lived.
D)   think the Fed should simply try to fine tune the economy.E) B) and D)
F) All of the above

Question 11

Which of the following events would shift money demand to the right?

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate, but not an increase in the price level
C)   an increase in the price level, but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) None of the above
F) B) and C)

Question 12

Suppose an economy's marginal propensity to consume (MPC)  is 0.6. Then

Accepted Answer

A)   1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96.
B)   1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
C)   1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
D)   1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.E) A) and B)
F) A) and C)

Question 13

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)   increased the money supply and increased interest rates.
B)   increased the money supply and decreased interest rates.
C)   decreased the money supply and increased interest rates.
D)   decreased the money supply and decreased interest rates.E) A) and B)
F) A) and C)

Question 14

In the short run, an increase in the money supply causes interest rates to

Accepted Answer

A)   increase, and aggregate demand to shift right.
B)   increase, and aggregate demand to shift left.
C)   decrease, and aggregate demand to shift right.
D)   decrease, and aggregate demand to shift left.E) None of the above
F) B) and C)

Question 15

If the MPC = 0.75, then the government purchases multiplier is about

Accepted Answer

A)   1.33.
B)   7.
C)   4.
D)   3.E) All of the above
F) A) and B)

Question 16

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 D)
F) A) and D)

Question 17

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates increase the quantity of money demanded.
B)   depends on the idea that increases in interest rates increase the quantity of money supplied.
C)   is the most important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.
D)   is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.E) B) and D)
F) None of the above

Question 18

An decrease in taxes 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) A) and B)
F) None of the above

Question 19

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)   increase if there were a surplus in the money market.
B)   increase if there were a shortage in the money market.
C)   decrease if there were a surplus in the money market.
D)   decrease if there were a shortage in the money market.E) None of the above
F) C) and D)

Question 20

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Accepted Answer

A)   requires the central bank to purchase government bonds, which will increase the money supply.
B)   is a reduction in government purchases.
C)   is a reduction in taxes.
D)   requires the central bank to sell government bonds, which will reduce the money supply.E) B) and C)
F) A) and D)

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

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Correct AnswerverifiedShow Answer

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply affect

Correct AnswerverifiedShow Answer

In the short run, an increase in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

An decrease in taxes shifts aggregate demand

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the right?

Correct AnswerverifiedShow Answer

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct AnswerverifiedShow Answer

If the MPC = 0.75, then the government purchases multiplier is about

Correct AnswerverifiedShow Answer

The lag problem associated with monetary policy is due mostly to

Correct AnswerverifiedShow Answer

If there is excess money supply, people will

Correct AnswerverifiedShow Answer

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Correct Answerverifiedsupply, pu...View AnswerShow Answer

When the interest rate is above the equilibrium level,

Correct AnswerverifiedShow Answer

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.

Correct Answer
verified
supply, pu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified