Question 1

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) None of the above
F) A) and D)

Question 2

In the early 1960s, the Kennedy administration made considerable use of

Accepted Answer

A)   fiscal policy to stimulate the economy.
B)   fiscal policy to slow down the economy.
C)   monetary policy to stimulate the economy.
D)   monetary policy to slow down the economy.E) B) and D)
F) C) and D)

Question 3

Which among the following assets is the most liquid?

Accepted Answer

A)   capital goods
B)   stocks and bonds with a low risk
C)   real estate
D)   funds in a checking accountE) All of the above
F) B) and C)

Question 4

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Accepted Answer

A)   purchase government bonds, which will increase the money supply.
B)   purchase government bonds, which will reduce the money supply.
C)   sell government bonds, which will increase the money supply.
D)   sell government bonds, which will reduce the money supply.E) None of the above
F) All of the above

Question 5

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 B)
F) A) and C)

Question 6

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 7

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 8

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) A) and B)
F) None of the above

Question 9

Macroeconomic forecasts are

Accepted Answer

A)   precise; this makes policy lags less relevant.
B)   precise; this makes policy lags more relevant.
C)   imprecise; this makes policy lags less relevant.
D)   imprecise; this makes policy lags more relevant.E) A) and C)
F) B) and C)

Question 10

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A)   r = 0.03, P = 1.2
B)   r = 0.03, P = 1.3
C)   r = 0.04, P = 1.2
D)   r = 0.05, P = 0.9E) B) and D)
F) A) and D)

Question 11

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Accepted Answer

A)   assumption that increases in government purchases have no effect on consumer spending.
B)   assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred.
C)   empirical evidence that points to a value of about 3/4 for the MPC.
D)   fact that the multiplier effect is represented by an infinite geometric series.E) C) and D)
F) None of the above

Question 12

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the cost of borrowing
C)   an increase in the price level
D)   an increase in the cost of borrowingE) C) and D)
F) A) and B)

Question 13

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 14

To reduce aggregate demand, the government may reduce or increase .

Accepted Answer

government...

Question 15

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A)   people want to hold more money. This response is shown by moving to the right along the money demand curve.
B)   people want to hold more money. This response is shown by shifting the money demand curve right.
C)   people want to hold less money. This response is shown by moving to the left along the money demand curve.
D)   people want to hold less money. This response is shown by shifting the money demand curve left.E) None of the above
F) All of the above

Question 16

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)   The actual MPC was larger than the MPC the aide used to compute the multiplier.
B)   The aide thought the tax cut would be permanent, but the actual tax cut was temporary.
C)   The increase in income shifted money demand less than the aide had anticipated.
D)   The increase in income resulted in investment rising more than the aide had anticipated.E) A) and B)
F) A) and D)

Question 17

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)   A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded.
B)   A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded.
C)   A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded.
D)   A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.E) C) and D)
F) B) and D)

Question 18

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 D)
F) A) and B)

Question 19

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)   An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants.
B)   An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants.
C)   An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases.
D)   An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.E) A) and D)
F) A) and B)

Question 20

Figure 34-12 
-Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-12 
-Refer to Figure 34-12. Suppose...

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

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct Answer
verified

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct Answer
verified

Supply-side economists believe that a reduction in the tax rate

Correct Answer
verified

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct Answer
verified

According to the theory of liquidity preference, if the interest rate rises

Correct Answer
verified

Macroeconomic forecasts are

Correct Answer
verified

Which among the following assets is the most liquid?

Correct Answer
verified

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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

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

In which of the following cases would the quantity of money demanded be largest?

Correct Answer
verified

Correct Answer
verified

In the early 1960s, the Kennedy administration made considerable use of

Correct Answer
verified

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Correct Answer
verified

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Correct Answer
verified

To reduce aggregate demand, the government may reduce or increase .

Correct Answer
verified
government...
View Answer

Which of the following properly describes the interest-rate effect?

Correct Answer
verified

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

Correct Answer
verified

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

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

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if the interest rate rises

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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

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

In which of the following cases would the quantity of money demanded be largest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the early 1960s, the Kennedy administration made considerable use of

Correct AnswerverifiedShow Answer

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Correct AnswerverifiedShow Answer

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Correct AnswerverifiedShow Answer

To reduce aggregate demand, the government may reduce or increase .

Correct Answerverifiedgovernment...View AnswerShow Answer

Which of the following properly describes the interest-rate effect?

Correct AnswerverifiedShow Answer

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

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Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Correct Answer
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government...
View Answer

Correct Answer
verified

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

Correct Answer
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Correct Answer
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