Question 1

People are likely to want to hold more money if the interest rate

Accepted Answer

A)   increases,making the opportunity cost of holding money rise.
B)   increases,making the opportunity cost of holding money fall.
C)   decreases,making the opportunity cost of holding money rise.
D)   decreases,making the opportunity cost of holding money fall.E) None of the above
F) All of the above

Question 2

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

Accepted Answer

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

Question 3

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 D)
F) All of the above

Question 4

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 5

Figure 24-4.On the figure,MS represents money supply and MD represents money demand. 1.If the current interest rate is r2,then 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 will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. C)  bond issuers and banks will respond by raising the interest rates they offer. D)  in response,the money-demand curve will shift upward from its current position to establish equilibrium in the money market." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 24-4.Suppose the money-demand curve is currently MD1.If the current interest rate is r2,then

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 will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks will respond by raising the interest rates they offer.
D)   in response,the money-demand curve will shift upward from its current position to establish equilibrium in the money market.E) B) and C)
F) All of the above

Question 6

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) A) and D)
F) None of the above

Question 7

During recessions,unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 8

An increase in government spending 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) B) and D)
F) A) and C)

Question 9

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

Accepted Answer

A)   interest rate and investment to rise.
B)   interest rate and investment to fall.
C)   interest rate to rise and investment to fall.
D)   interest rate to fall and investment to rise.E) B) and C)
F) A) and D)

Question 10

Scenario 24-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $5,200 when income is $8,000.
• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 24-2.For this economy,an initial increase of $500 in government purchases translates into a

Accepted Answer

A)   $1,428.57 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)   $1,428.57 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) B) and C)
F) A) and D)

Question 11

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly,but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly,but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) B) and D)
F) B) and C)

Question 12

Suppose investment spending falls.To offset the change in output the Federal Reserve could

Accepted Answer

A)   increase the money supply.This increase would also move the price level closer to its value before the decline in investment spending.
B)   increase the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.
C)   decrease the money supply.This decrease would also move the price level closer to its value before the decline in investment spending.
D)   decrease the money supply.However,this increase would move the price level farther from its value before the decline in investment spending.E) A) and D)
F) B) and C)

Question 13

In the graph of the money market,the money supply curve is

Accepted Answer

A)   vertical.It shifts rightward if the Fed buys bonds.
B)   vertical.It shifts rightward if the Fed sells bonds.
C)   upward sloping.It shifts rightward if the Fed buys bonds.
D)   upward sloping.It shifts rightward if the Fed sells bonds.E) A) and B)
F) A) and C)

Question 14

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises...

Question 15

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

Question 16

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)   increase aggregate demand in the short run and aggregate supply in the long run.
B)   increase aggregate supply in the short run and aggregate demand in the long run.
C)   only increase aggregate supply in the long run.
D)   only increase aggregate demand in the short run.E) B) and C)
F) A) and D)

Question 17

If the Fed conducts open-market sales,the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) A) and B)
F) None of the above

Question 18

According to classical macroeconomic theory,

Accepted Answer

A)   output is determined by the supplies of capital and labor and the available production technology.
B)   for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
C)   given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 19

When the interest rate is below the equilibrium level,

Accepted Answer

A)   the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold.
B)   people respond by selling interest-bearing bonds or by withdrawing money from 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) B) and C)
F) None of the above

Question 20

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu...

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

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 AnswerverifiedShow Answer

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

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

Suppose investment spending falls.To offset the change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During recessions,unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

Figure 24-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-4.Suppose the money-demand curve is currently MD1.If the current interest rate is r2,then

Correct AnswerverifiedShow Answer

When the interest rate is below the equilibrium level,

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow Answer

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

Scenario 24-2.The following facts apply to a small,imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 24-2.For this economy,an initial increase of $500 in government purchases translates into a

Correct AnswerverifiedShow Answer

An increase in government spending shifts aggregate demand

Correct AnswerverifiedShow Answer

People are likely to want to hold more money if the interest rate

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct AnswerverifiedIf the interest rate is above equilibriu...View AnswerShow Answer

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Correct AnswerverifiedThe reduction in the money supply raises...View AnswerShow Answer

In the graph of the money market,the money supply curve is

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales,the money supply

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 24-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-4.Suppose the money-demand curve is currently MD₁.If the current interest rate is r₂,then

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The wealth effect and the exchange-rate ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If the interest rate is above equilibriu...
View Answer

Correct Answer
verified
The reduction in the money supply raises...
View Answer

Correct Answer
verified

Correct Answer
verified