Question 1

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 2

Which of the following events would shift money demand to the right?

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate, but not an increase in the price level
C)   an increase in the price level, but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) All of the above
F) A) and D)

Question 3

In the short run, an increase 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) None of the above
F) B) and D)

Question 4

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a effect on...

Question 5

Figure 34-1 
-Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Accepted Answer

A)   demand for money equal to the distance between points a and b. 
B)   demand for money equal to the distance between points b and c.
C)   supply of money equal to the distance between points a and b.
D)   supply of money equal to the distance between points b and c.E) B) and C)
F) All of the above

Question 6

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand decreases.
C)   The price level decreases.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 7

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A)   wealth effect, exchange-rate effect, interest-rate effect
B)   exchange-rate effect, interest-rate effect, wealth effect
C)   interest-rate effect, wealth effect, exchange-rate effect
D)   interest-rate effect, exchange-rate effect, wealth effectE) B) and D)
F) A) and D)

Question 8

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 9

In the long run, the level of output

Accepted Answer

A)   depends on the money supply.
B)   depends on the price level.
C)   is determined by supply-side factors.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 10

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

A)   Keynesian in nature, and that her view is more valid for the long run than for the short run.
B)   classical in nature, and that her view is more valid for the long run than for the short run.
C)   Keynesian in nature, and that her view is more valid for the short run than for the long run.
D)   classical in nature, and that her view is more valid for the short run than for the long run.E) All of the above
F) B) and D)

Question 11

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)   A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect.
B)   A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.
C)   An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect.
D)   An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.E) None of the above
F) B) and D)

Question 12

As real GDP falls,

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

Question 13

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. What does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)   the quantity of money
B)   the rate of inflation
C)   real output
D)   nominal outputE) A) and B)
F) A) and C)

Question 14

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)   the interest rate on bonds.
B)   the inflation rate.
C)   the cost of converting bonds to a medium of exchange.
D)   the difference between the inflation rate and the interest rate on bonds.E) None of the above
F) A) and B)

Question 15

Suppose an economy's marginal propensity to consume MPC)  is 0.6. Then

Accepted Answer

A)   1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96.
B)   1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
C)   1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3.
D)   1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.E) A) and B)
F) A) and C)

Question 16

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Accepted Answer

A)   3.2 for government purchases and 2.0 for tax cuts.
B)   2.4 for government purchases and 1.4 for tax cuts.
C)   1.6 for government purchases and 1.0 for tax cuts.
D)   1.6 for government purchases and 0.4 for tax cuts.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) A) and B)
F) A) and C)

Question 18

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 19

If the stock market crashes, then

Accepted Answer

A)   aggregate demand decreases, which the Fed could offset by purchasing bonds.
B)   aggregate demand decreases, which the Fed could offset by selling bonds.
C)   aggregate demand increases, which the Fed could offset by selling bonds.
D)   aggregate demand increases, which the Fed could offset by purchasing the money supply.E) A) and B)
F) None of the above

Question 20

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...

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

In the short run, an increase in the money supply causes interest rates to

Correct Answer
verified

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
verified

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.

Correct Answer
verified

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Correct Answer
verified

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct Answer
verified

According to liquidity preference theory, the opportunity cost of holding money is

Correct Answer
verified

As real GDP falls,

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct Answer
verified

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct Answer
verified

Which of the following events would shift money demand to the right?

Correct Answer
verified

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

Correct Answer
verified

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

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

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Correct Answer
verified

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Correct Answer
verified

In the long run, the level of output

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Correct Answer
verified

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

In the short run, an increase in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Correct AnswerverifiedShow Answer

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Correct AnswerverifiedShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

As real GDP falls,

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct AnswerverifiedShow Answer

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the right?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

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

Correct AnswerverifiedShow Answer

Suppose an economy's marginal propensity to consume MPC) is 0.6. Then

Correct AnswerverifiedShow Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Correct AnswerverifiedShow Answer

In the long run, the level of output

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.

Correct Answer
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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
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