Question 1

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

The answer of The idea that aggregate demand fluctuates due...

Question 2

If the Federal Reserve increases the money supply, then initially people want to

Accepted Answer

A)   sell bonds so the interest rate rises.
B)   sell bonds so the interest rate falls.
C)   buy bonds so the interest rate rises.
D)   buy bonds so the interest rate falls.E) All of the above
F) A) and C)

Question 3

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Accepted Answer

A) True 
 B)False

Question 4

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)   $1480
B)   $480
C)   $160
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 5

If the multiplier is 3, then the MPC is

Accepted Answer

A)   1/3.
B)   3/4.
C)   4/3.
D)   2/3.E) C) and D)
F) All of the above

Question 6

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A)   move toward deficit.
B)   move toward surplus.
C)   move toward balance.
D)   not necessarily move the budget in any particular direction.E) B) and D)
F) A) and C)

Question 7

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)   contribute to a more stable level of output.
B)   mitigate the crowding-out effect.
C)   eliminate the economy's automatic stabilizers.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 8

An increase in taxes shifts the aggregate curve to the .

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 9

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)   an increase in government expenditures
B)   an increase in net exports
C)   an increase in investment spending
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 10

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)   open-market rate.
B)   discount rate.
C)   preference rate.
D)   None of the above are correct.E) B) and C)
F) B) and D)

Question 11

If there is excess money supply, people will

Accepted Answer

A)   deposit more into interest-bearing accounts, and the interest rate will fall.
B)   deposit more into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) All of the above
F) C) and D)

Question 12

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 13

Which of the following Fed actions would both decrease the money supply?

Accepted Answer

A)   buy bonds and raise the reserve requirement
B)   buy bonds and lower the reserve requirement
C)   sell bonds and raise the reserve requirement
D)   sell bonds and lower the reserve requirementE) A) and B)
F) A) and C)

Question 14

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)   increase taxes
B)   increase government expenditures
C)   increase the money supply
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 15

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Accepted Answer

A)   operating at full capacity.
B)   in recession.
C)   experiencing zero inflation.
D)   experiencing high rates of inflation.E) A) and D)
F) B) and C)

Question 16

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

Question 17

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion.
An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)   left by $60 billion.
B)   left by $36 billion.
C)   right by $68 billion.
D)   right by $36 billion.E) B) and C)
F) A) and D)

Question 18

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Accepted Answer

supply, pu...

Question 19

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 20

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) A) and B)
F) B) and D)

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

Which of the following Fed actions would both decrease the money supply?

Correct Answer
verified

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct Answer
verified

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

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

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct Answer
verified

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct Answer
verified

An increase in taxes shifts the aggregate curve to the .

Correct Answer
verified

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Correct Answer
verified

When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.

Correct Answer
verified
supply, pu...
View Answer

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct Answer
verified

If the multiplier is 3, then the MPC is

Correct Answer
verified

If the Federal Reserve increases the money supply, then initially people want to

Correct Answer
verified

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Correct Answer
verified

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct Answer
verified

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

Correct Answer
verified

During recessions, automatic stabilizers tend to make the government's budget

Correct Answer
verified

If there is excess money supply, people will

Correct Answer
verified

Correct Answer
verified

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct Answer
verified

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

Which of the following Fed actions would both decrease the money supply?

Correct AnswerverifiedShow Answer

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

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

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct AnswerverifiedShow Answer

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct AnswerverifiedShow Answer

An increase in taxes shifts the aggregate curve to the .

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Correct AnswerverifiedShow Answer

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Correct Answerverifiedsupply, pu...View AnswerShow Answer

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Correct AnswerverifiedShow Answer

If the multiplier is 3, then the MPC is

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially people want to

Correct AnswerverifiedShow Answer

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Correct AnswerverifiedShow Answer

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During recessions, automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

If there is excess money supply, people will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.

Correct Answer
verified
supply, pu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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