Question 1

Changes in the interest rate bring the money market into equilibrium according to

Accepted Answer

A)  both liquidity preference theory and classical theory.
B)  neither liquidity preference theory nor classical theory.
C)  liquidity preference theory, but not classical theory.
D)  classical theory, but not liquidity preference theory.E) A) and B)
F) B) and C)

Question 2

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) A) and B)
F) A) and C)

Question 3

For the U.S. economy, money holdings are a

Accepted Answer

A)  large part of household wealth, and so the interest-rate effect is large.
B)  large part of household wealth, and so the wealth effect is large.
C)  small part of household wealth, and so the interest-rate effect is small.
D)  small part of household wealth, and so the wealth effect is small.E) A) and B)
F) A) and C)

Question 4

Which of the following shifts aggregate demand to the right?

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) B) and C)
F) None of the above

Question 5

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 6

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

The opportunity cost of holding money

Accepted Answer

A)  decreases when the interest rate increases, so people desire to hold more of it.
B)  decreases when the interest rate increases, so people desire to hold less of it.
C)  increases when the interest rate increases, so people desire to hold more of it.
D)  increases when the interest rate increases, so people desire to hold less of it.E) B) and C)
F) A) and B)

Question 8

In the short run,

Accepted Answer

A)  the price level alone adjusts to balance the supply and demand for money.
B)  output responds to changes in the aggregate demand for goods and services.
C)  changes in the money supply cause a proportional change in the price level.
D)  increases in the money supply shift the aggregate supply curve causing output to rise.E) A) and C)
F) A) and D)

Question 9

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

Question 10

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 11

If the price level falls, then

Accepted Answer

A)  the interest rate falls and spending on goods and services falls.
B)  the interest rate falls and spending on goods and services rises.
C)  the interest rate rises and spending on goods and services falls.
D)  the interest rate rises and spending on goods and services rises.E) B) and C)
F) A) and B) B

Question 12

People choose to hold a smaller quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise.
B)  the interest rate falls, which causes the opportunity cost of holding money to rise.
C)  the interest rate rises, which causes the opportunity cost of holding money to fall.
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.E) A) and B)
F) B) and C)

Question 13

During recessions, the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 14

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False  True

Question 15

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)  $300 billion and $180 billion
B)  $300 billion and $300 billion
C)  $500 billion and $300 billion
D)  $500 billion and $500 billionE) A) and D)
F) None of the above

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) A) and B)
F) None of the above

Question 17

When the interest rate decreases, the opportunity cost of holding money

Accepted Answer

A)  increases, so the quantity of money demanded increases.
B)  increases, so the quantity of money demanded decreases.
C)  decreases, so the quantity of money demanded increases.
D)  decreases, so the quantity of money demanded decreases.E) A) and B)
F) A) and C)

Question 18

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right.
B)  money demand shifts right or money supply shifts left.
C)  either money demand or money supply shifts left.
D)  money demand shifts left or money supply shifts right.E) A) and C)
F) A) and D)

Question 19

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

Question 20

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory.
B)  neither liquidity preference theory nor classical theory.
C)  liquidity preference theory, but not classical theory.
D)  classical theory, but not liquidity preference theory.E) A) and C)
F) None of the above

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

Changes in the interest rate bring the money market into equilibrium according to

Correct Answer
verified

A tax cut shifts aggregate demand

Correct Answer
verified

For the U.S. economy, money holdings are a

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

During recessions, unemployment insurance payments tend to rise.

Correct Answer
verified

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct Answer
verified

The opportunity cost of holding money

Correct Answer
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In the short run,

Correct Answer
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The lag problem associated with monetary policy is due mostly to

Correct Answer
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If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct Answer
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If the price level falls, then

Correct Answer
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B

People choose to hold a smaller quantity of money if

Correct Answer
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During recessions, the government tends to run a budget deficit.

Correct Answer
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When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct Answer
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True

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An increase in the U.S. interest rate

Correct Answer
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When the interest rate decreases, the opportunity cost of holding money

Correct Answer
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The interest rate falls if

Correct Answer
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The theory of liquidity preference is most helpful in understanding

Correct Answer
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C

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct Answer
verified

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

Changes in the interest rate bring the money market into equilibrium according to

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

For the U.S. economy, money holdings are a

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

The lag problem associated with monetary policy is due mostly to

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct AnswerverifiedShow Answer

If the price level falls, then

Correct AnswerverifiedB

People choose to hold a smaller quantity of money if

Correct AnswerverifiedShow Answer

During recessions, the government tends to run a budget deficit.

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

When the interest rate decreases, the opportunity cost of holding money

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedC

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct AnswerverifiedShow Answer

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B

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True

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C

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