Question 1

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)   increase, so the money supply increases.
B)   increase, so the money supply decreases.
C)   decrease, so the money supply increases.
D)   decrease, so the money supply decreases.E) A) and D)
F) B) and C)

Question 2

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Accepted Answer

A)   $60.60.
B)   $60.67.
C)   $61.33.
D)   $63.00.E) All of the above
F) B) and D)

Question 3

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) None of the above
F) All of the above

Question 4

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A)   MPC = 1/2, and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.
B)   MPC = 2/3, and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures
C)   MPC = 3/4, and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures
D)   All of the above are correct.E) All of the above
F) None of the above

Question 5

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)   level of real output only.
B)   interest rate only.
C)   level of real output and by the interest rate.
D)   Federal Reserve.E) A) and B)
F) A) and C)

Question 6

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Accepted Answer

A)   aggregate demand falls by 3 x $40 billion.
B)   aggregate demand falls by 11/3 x $40 billion.
C)   aggregate demand falls by 11/8 x $40 billion.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 9

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Accepted Answer

A)   the equilibrium interest rate decreases.
B)   the aggregate-demand curve shifts to the left.
C)   the quantity of goods and services demanded is unchanged for a given price level.
D)   the long-run aggregate-supply curve shifts to the right.E) A) and D)
F) A) and C)

Question 10

Changes in the interest rate help explain

Accepted Answer

A)   only the slope of, not shifts of aggregate demand.
B)   only shifts of, not the slope of aggregate demand.
C)   both the slope of and shifts of aggregate demand.
D)   neither the slope nor shifts of aggregate demand.E) A) and D)
F) A) and C)

Question 11

Figure 16-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 16-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)   wealth effect.
B)   interest-rate effect.
C)   exchange-rate effect.
D)   Fisher effect.E) A) and B)
F) A) and C)

Question 12

The short-run effects on the interest rate are

Accepted Answer

A)   shown equally well using either liquidity preference theory or classical theory.
B)   best shown using classical theory.
C)   best shown using liquidity preference theory.
D)   not shown well by either liquidity preference theory or classical theory.E) None of the above
F) B) and C)

Question 13

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

Question 14

Critics of stabilization policy argue that

Accepted Answer

A)   policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived.
B)   policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.
C)   policy affects aggregate demand with a lag, but the effects are short-lived.
D)   policy does not affect aggregate demand.E) B) and C)
F) All of the above

Question 15

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)   The price level rises, causing the interest rate to fall.
B)   The price level falls, causing the interest rate to fall.
C)   The money supply increases, causing the interest rate to fall.
D)   The money supply decreases, causing the interest rate to fall.E) None of the above
F) C) and D)

Question 16

As income rises

Accepted Answer

A)   money demand rises, so the interest rate rises.
B)   money demand rises, so the interest rate falls
C)   money demand falls, so the interest rate rises.
D)   money demand falls, so the interest rate falls.E) B) and C)
F) A) and D)

Question 17

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 18

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
 1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then A)  there will be an increase in the equilibrium quantity of goods and services demanded. B)  there will be a decrease in the equilibrium quantity of goods and services demanded. C)  there will be an increase in the equilibrium interest rate. D)  fewer firms will choose to borrow to build new factories and buy new equipment. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-4. Suppose the current equilibrium interest rate is r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

Accepted Answer

A)   there will be an increase in the equilibrium quantity of goods and services demanded.
B)   there will be a decrease in the equilibrium quantity of goods and services demanded.
C)   there will be an increase in the equilibrium interest rate.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) B) and C)
F) A) and D)

Question 19

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 20

In the short run, a decrease 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) A) and B)
F) C) and D)

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Correct Answer
verified

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

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

In which of the following cases does the aggregate-demand curve shift to the right?

Correct Answer
verified

Correct Answer
verified

As income rises

Correct Answer
verified

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

An increase in government spending shifts aggregate demand

Correct Answer
verified

When the Fed sells government bonds, the reserves of the banking system

Correct Answer
verified

In the short run, a decrease in the money supply causes interest rates to

Correct Answer
verified

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

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct Answer
verified

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
verified

Changes in the interest rate help explain

Correct Answer
verified

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Correct Answer
verified

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct Answer
verified

The short-run effects on the interest rate are

Correct Answer
verified

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Correct Answer
verified

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Correct AnswerverifiedShow 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 which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

As income rises

Correct AnswerverifiedShow Answer

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in government spending shifts aggregate demand

Correct AnswerverifiedShow Answer

When the Fed sells government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

In the short run, a decrease in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

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

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

Changes in the interest rate help explain

Correct AnswerverifiedShow Answer

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Correct AnswerverifiedShow Answer

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

The short-run effects on the interest rate are

Correct AnswerverifiedShow Answer

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Correct AnswerverifiedShow Answer

Correct Answer
verified

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

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