Question 1

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) A) and C)
F) None of the above

Question 2

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

Question 3

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)   the crowding-out effect
B)   the multiplier effect
C)   the exchange-rate effect
D)   the interest-rate effectE) A) and D)
F) A) and C)

Question 4

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 5

According to John Maynard Keynes,

Accepted Answer

A)   the demand for money in a country is determined entirely by that nation's central bank.
B)   the supply of money in a country is determined by the overall wealth of the citizens of that country.
C)   the interest rate adjusts to balance the supply of,and demand for,money.
D)   the interest rate adjusts to balance the supply of,and demand for,goods and services.E) A) and B)
F) A) and C)

Question 6

According to liquidity preference theory,an increase 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) C) and D)
F) A) and D)

Question 7

The marginal propensity to consume (MPC) is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) B) and D)
F) B) and C)

Question 8

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

Question 9

Figure 34-1 
-Refer to Figure 34-1.There is an excess demand for money at an interest rate of

Accepted Answer

A)   2 percent.
B)   3 percent.
C)   4 percent.
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 10

Supply-side economists focus more than other economists on

Accepted Answer

A)   how fiscal policy affects consumption.
B)   the multiplier affect of fiscal policy.
C)   how fiscal policy affects aggregate supply.
D)   the money supply.E) None of the above
F) A) and D)

Question 11

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)   demand rightward by more than $100 billion.
B)   demand rightward by less than $100 billion.
C)   supply leftward by more than $100 billion.
D)   supply leftward by less than $100 billion.E) A) and C)
F) B) and C)

Question 12

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

Question 13

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Accepted Answer

A)   0.75 and the multiplier is 1 1/3.
B)   0.75 and the multiplier is 4.
C)   0.25 and the multiplier is 1 1/3.
D)   0.25 and the multiplier is 4.E) B) and D)
F) A) and C)

Question 14

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Accepted Answer

A)   relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B)   relatively important in the United States because consumption spending is a large part of GDP.
C)   relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D)   relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.E) A) and B)
F) A) and C)

Question 15

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 D)

Question 16

Suppose the MPC is 0.75.There are no crowding out or investment accelerator effects.If the government increases its 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 far does aggregate demand shift to the right?

Accepted Answer

A)   $800 billion and $800 billion
B)   $800 billion and $600 billion
C)   $600 billion and $600 billion
D)   $600 billion and $450 billionE) B) and C)
F) None of the above

Question 17

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 18

In the long run,the level of output

Accepted Answer

A)   depends on the money supply.
B)   depends on the price level.
C)   is determined by supply-side factors.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 19

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
B)   depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
C)   is responsible for the downward slope of the money-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) All of the above
F) B) and C)

Question 20

Permanent tax cuts shift the AD curve

Accepted Answer

A)   farther to the right than do temporary tax cuts.
B)   not as far to the right as do temporary tax cuts.
C)   farther to the left than do temporary tax cuts.
D)   not as far to the left as do temporary tax cuts.E) None of the above
F) A) and C)

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

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Correct Answer
verified

Supply-side economists believe that changes in government purchases affect

Correct Answer
verified

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

Correct Answer
verified

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Correct Answer
verified

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1.There is an excess demand for money at an interest rate of

Correct Answer
verified

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

Permanent tax cuts shift the AD curve

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

The marginal propensity to consume (MPC) is defined as the fraction of

Correct Answer
verified

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

Correct Answer
verified

In the long run,the level of output

Correct Answer
verified

Supply-side economists focus more than other economists on

Correct Answer
verified

According to John Maynard Keynes,

Correct Answer
verified

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Correct Answer
verified

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

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

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Correct AnswerverifiedShow Answer

Supply-side economists believe that changes in government purchases affect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Correct AnswerverifiedShow Answer

Assuming a multiplier effect,but no crowding-out or investment-accelerator effects,a $100 billion increase in government expenditures shifts aggregate

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1.There is an excess demand for money at an interest rate of

Correct AnswerverifiedShow Answer

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

The marginal propensity to consume (MPC) is defined as the fraction of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run,the level of output

Correct AnswerverifiedShow Answer

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

According to John Maynard Keynes,

Correct AnswerverifiedShow Answer

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

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