Question 1

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) A) and D)
F) A) and C)

Question 2

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

Question 3

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 D)

Question 4

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) All of the above
F) B) and C)

Question 5

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)  shifts rightward by $100 billion.
B)  shifts rightward by $51 billion.
C)  shifts rightward by $170 billion.
D)  shifts rightward by $72.8 billion.E) A) and B)
F) None of the above

Question 6

Critics of stabilization policy argue that

Accepted Answer

A)  "animal spirits" must be offset by active monetary policy.
B)  active monetary policy is necessary for steady economic growth.
C)  the lag problem ends up being a cause of economic fluctuations.
D)  active fiscal policy is required for steady economic growth.E) A) and D)
F) A) and B)

Question 7

People will want to hold less money if the price level

Accepted Answer

A)  increases or if the interest rate increases.
B)  decreases or if the interest rate decreases.
C)  increases or if the interest rate decreases.
D)  decreases or if the interest rate increases.E) A) and B)
F) A) and C)

Question 8

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

Accepted Answer

A)  increase the money supply, which will reduce interest rates.
B)  decrease the money supply, which will reduce interest rates.
C)  increase the money supply, which will increase interest rates.
D)  decrease the money supply, which will increase interest rates.E) A) and B)
F) All of the above

Question 9

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Accepted Answer

increases,...

Question 10

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point _____ where output is $_____.

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 11

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run.
B)  the long run but not in the short run.
C)  both the short and long run.
D)  neither the short nor long run.E) A) and B)
F) A) and C)

Question 12

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)  Money demand shifts rightward.
B)  Initially there is an excess demand for money in the money market.
C)  The interest rate rises.
D)  All of the above are correct.E) None of the above
F) A) and C)

Question 13

A decrease in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right.
B)  aggregate demand to the left.
C)  aggregate supply to the right.
D)  neither aggregate demand nor aggregate supply.E) A) and B)
F) C) and D)

Question 14

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the interest rate could have been caused by

Accepted Answer

A)  a fall in the price level causing the money-demand curve to shift leftward.
B)  a fall in the price level causing the money-demand curve to shift rightward.
C)  a rise in the price level causing the money-demand curve to shift leftward.
D)  a rise in the price level causing the money-demand curve to shift rightward.E) All of the above
F) A) and B)

Question 16

For the following questions, use the diagram below:
Figure 34-7. 1 to AD2, the economy will stay at point b in both the short run and long run. C) It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-7. Which of the following is correct?

Accepted Answer

A)  A wave of optimism could move the economy from point a to point b.
B)  If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run.
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 17

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. For this economy, an initial increase of $500 in government purchases translates into a

Accepted Answer

A)  $1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
B)  $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C)  $1,135 increase in aggregate demand when the crowding-out effect is taken into account.
D)  $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.E) All of the above
F) A) and B)

Question 18

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)  3.2 for government purchases and 2.0 for tax cuts.
B)  2.4 for government purchases and 1.4 for tax cuts.
C)  1.6 for government purchases and 1.0 for tax cuts.
D)  1.6 for government purchases and 0.4 for tax cuts.E) None of the above
F) B) and D)

Question 19

When the Fed lowers the growth rate of the money supply, it must take into account

Accepted Answer

A)  only the short-run effect on production.
B)  only the short-run effects on inflation and production.
C)  only the long-run effect on inflation.
D)  the long-run effect on inflation as well as the short-run effect on production.E) None of the above
F) A) and D)

Question 20

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)  if the money demand curve shifted right.
B)  if the Federal Reserve chose to increase the money supply.
C)  if the interest rate increased.
D)  All of the above are correct.E) B) and D)
F) B) and C)

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

A decrease in government spending initially and primarily shifts

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

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People will want to hold less money if the price level

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Shifts in aggregate demand affect the price level in

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Other things the same, which of the following happens if the price level rises?

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A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Correct Answerverifiedincreases,...View AnswerShow Answer

Critics of stabilization policy argue that

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

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When the Fed lowers the growth rate of the money supply, it must take into account

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Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

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According to liquidity preference theory, the money-supply curve would shift rightward

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the interest rate could have been caused by

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Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point _____ where output is $_____.

Correct AnswerverifiedShow Answer

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Correct AnswerverifiedShow Answer

If there is excess money supply, people will

Correct AnswerverifiedShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. Which of the following is correct?

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

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The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.

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increases,...
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Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point _ where output is $_.

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