Question 1

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases,...

Question 2

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 3

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 4

As the interest rate falls,

Accepted Answer

A)   the quantity of money demanded falls, which would reduce a shortage.
B)   the quantity of money demanded falls, which would reduce a surplus.
C)   the quantity of money demanded rises, which would reduce a shortage.
D)   the quantity of money demanded rises, which would reduce a surplus.E) None of the above
F) B) and D)

Question 5

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 B)
F) None of the above

Question 6

Figure 34-2. 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 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A)   the quantity of goods and services demanded is higher at P2 than it is at P1.
B)   the quantity of money is higher at Y1 than it is at Y2.
C)   an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 7

According to the theory of liquidity preference, a decrease 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) A) and C)
F) All of the above

Question 8

When there is an excess supply of money,

Accepted Answer

A)   people will try to get rid of money causing interest rates to rise. Investment increases.
B)   people will try to get rid of money causing interest rates to fall. Investment decreases.
C)   people will try to get rid of money causing interest rates to fall. Investment increases.
D)   people will try to get rid of money causing interest rates to rise. Investment decreases.E) All of the above
F) B) and C)

Question 9

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   The price level rises.
B)   The price level falls.
C)   The Fed purchases government bonds on the open market.
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 10

According to liquidity preference theory,

Accepted Answer

A)   an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.
B)   an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward.
C)   an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward.
D)   an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.E) A) and B)
F) C) and D)

Question 11

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

A)   buy bonds to raise the interest rate
B)   buy bonds to lower the interest rate
C)   sell bonds to raise the interest rate
D)   sell bonds to raise the interest rate.E) None of the above
F) A) and B)

Question 12

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)   an "easy" monetary policy.
B)   a "passive" monetary policy.
C)   a "practical" monetary policy.
D)   an "active" monetary policy.E) A) and B)
F) All of the above

Question 13

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 14

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Accepted Answer

A)   increase the money supply by buying bonds
B)   increase the money supply by selling bonds
C)   decrease the money supply by buying bonds.
D)   increase the money supply by selling bonds.E) None of the above
F) A) and B)

Question 15

Figure 34-2. 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 34-2. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)   the nominal interest rate
B)   the quantity of money demanded
C)   investment
D)   the expected rate of inflationE) C) and D)
F) All of the above

Question 16

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

Question 17

If the price level rises, then

Accepted Answer

A)   the interest rate falls and spending on goods and services falls.
B)   the interest rate falls and spending on goods and services rises.
C)   the interest rate rises and spending on goods and services falls.
D)   the interest rate rises and spending on goods and services rises.E) A) and C)
F) A) and B)

Question 18

Other things the same, a decrease in the U.S. interest rate

Accepted Answer

A)   induces firms to invest more.
B)   shifts money demand to the left.
C)   makes the U.S. dollar appreciate.
D)   increases the opportunity cost of holding dollars.E) None of the above
F) A) and B)

Question 19

Figure 34-7 
-Refer to Figure 34-7. Which of the following is correct?

Accepted Answer

A)   Unemployment rises as the economy moves from point a to point b.
B)   Either fiscal or monetary policy could be used to move the economy from point b to point a.
C)   If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther.
D)   All of the above are correct E) A) and D)
F) A) and C)

Question 20

If the Fed conducts open-market purchases, 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 D)
F) All of the above

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

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct Answer
verified

As the interest rate falls,

Correct Answer
verified

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

Correct Answer
verified

The multiplier effect is exemplified by the multiplied impact on

Correct Answer
verified

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
verified

When there is an excess supply of money,

Correct Answer
verified

Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

Correct Answer
verified

According to the theory of liquidity preference, a decrease in the price level causes the

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Correct Answer
verified

According to liquidity preference theory,

Correct Answer
verified

A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases,...
View Answer

If the price level rises, then

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

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

Correct Answer
verified

Other things the same, a decrease in the U.S. interest rate

Correct Answer
verified

A policy that results in slow and steady growth of the money supply is an example of

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct AnswerverifiedShow Answer

As the interest rate falls,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, a decrease in the price level causes the

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Correct AnswerverifiedShow Answer

According to liquidity preference theory,

Correct AnswerverifiedShow Answer

A decrease in taxes ____ aggregate demand through larger _____ by households.

Correct Answerverifiedincreases,...View AnswerShow Answer

If the price level rises, then

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

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

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the U.S. interest rate

Correct AnswerverifiedShow Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases,...
View Answer

Correct Answer
verified

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

Correct Answer
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Correct Answer
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