Question 1

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Accepted Answer

A)   $381.67.
B)   $378.
C)   $383.
D)   $383.33.E) A) and C)
F) None of the above

Question 2

Opponents of active stabilization policy

Accepted Answer

A)   advocate a monetary policy designed to offset changes in the unemployment rate.
B)   argue that fiscal policy is unable to change aggregate demand or aggregate supply.
C)   believe that the political process creates lags in the implementation of fiscal policy.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 3

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)   increase if there were a surplus in the money market.
B)   increase if there were a shortage in the money market.
C)   decrease if there were a surplus in the money market.
D)   decrease if there were a shortage in the money market.E) A) and B)
F) A) and D)

Question 4

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need ...

Question 5

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

Question 6

Figure 34-1 
-Refer to Figure 34-1. If the current interest rate is 2 percent,

Accepted Answer

A)   there is an excess supply of money.
B)   people will sell more bonds, which drives interest rates up.
C)   as the money market moves to equilibrium, people will buy more goods.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 7

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 B)
F) A) and C)

Question 8

If the stock market booms, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by purchasing bonds.
B)   aggregate supply increases, which the Fed could offset by selling bonds.
C)   aggregate demand increases, which the Fed could offset by selling bonds.
D)   aggregate supply increases, which the Fed could offset by purchasing the money supply.E) B) and C)
F) A) and D)

Question 9

The lag problem associated with fiscal 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 implementing fiscal policy.
C)   the time it takes for changes in government spending or taxes to affect the interest rate.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 11

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)   6/5, so a $200 increase in government spending increases aggregate demand by $240.
B)   5, so a $200 increase in government spending increases aggregate supply by $1000.
C)   6, so a $200 increase in government spending increases aggregate demand by $1200.
D)   6/5, so a $200 increase in government spending increases aggregate supply by $1200.E) A) and B)
F) A) and C)

Question 12

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)   the money supply of a given increase in government purchases.
B)   tax revenues of a given increase in government purchases.
C)   investment of a given increase in interest rates.
D)   aggregate demand of a given increase in government purchases.E) A) and C)
F) None of the above

Question 13

The Federal Funds rate is the interest rate

Accepted Answer

A)   banks charge each other for short-term loans.
B)   the Fed charges depository institutions for short-term loans.
C)   the Fed pays on deposits.
D)   interest rate on 3 month Treasury bills.E) C) and D)
F) A) and B)

Question 14

Monetary policy is determined by

Accepted Answer

A)   the president and Congress and involves changing government spending and taxation.
B)   the president and Congress and involves changing the money supply.
C)   the Federal Reserve and involves changing government spending and taxation.
D)   the Federal Reserve and involves changing the money supply.E) A) and B)
F) B) and D)

Question 15

People might withdraw money from interest-bearing accounts,

Accepted Answer

A)   making the interest rate fall, if there is a surplus in the money market.
B)   making the interest rate rise, if there is a surplus in the money market.
C)   making the interest rate fall, if there is a shortage in the money market.
D)   making the interest rate rise, if there is a shortage in the money market.E) C) and D)
F) B) and D)

Question 16

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Accepted Answer

A)   0.650.
B)   0.750.
C)   0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)   0.800.E) B) and D)
F) B) and C)

Question 17

If the MPC is 0, then the multiplier is

Accepted Answer

A)   0.
B)   1.
C)   infinite.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 18

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Accepted Answer

A)   By themselves, both the change in output and the change in the interest rate increase desired investment.
B)   By themselves, both the change in output and the change in the interest rate decrease desired investment.
C)   By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
D)   By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.E) A) and B)
F) All of the above

Question 19

Which of the following is not an automatic stabilizer?

Accepted Answer

A)   the minimum wage
B)   the unemployment compensation system
C)   the federal income tax
D)   the welfare systemE) C) and D)
F) B) and C)

Question 20

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)   increase money demand and interest rates. Investment declines.
B)   increase money demand and interest rates. Investment increases.
C)   increase money demand, reduce interest rates, and investment increases.
D)   decrease money demand and interest rates. Investment declines.E) None of the above
F) A) and C)

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

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Correct AnswerverifiedShow Answer

If the MPC is 5/6 then the multiplier is

Correct AnswerverifiedShow Answer

If the stock market booms, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monetary policy is determined by

Correct AnswerverifiedShow Answer

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

Which of the following is not an automatic stabilizer?

Correct AnswerverifiedShow Answer

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Correct AnswerverifiedShow Answer

People might withdraw money from interest-bearing accounts,

Correct AnswerverifiedShow Answer

The lag problem associated with fiscal policy is due mostly to

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls, people need ...View AnswerShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

According to the interest-rate effect, an increase in the price level will

Correct AnswerverifiedShow Answer

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

If the MPC is 0, then the multiplier is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the price level falls, people need ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified