Question 1

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) C) and D)

Question 2

Figure 34-1 
-Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Accepted Answer

A)   2 percent.
B)   3 percent.
C)   4 percent.
D)   None of the above is correct.E) A) and C)
F) B) and C)

Question 3

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 4

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)   $216 billion.
B)   $150 billion.
C)   $600 billion.
D)   $480 billion.E) B) and C)
F) A) and B)

Question 5

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. For this economy, an initial increase of $500 in government purchases translates into a

Accepted Answer

A)   $1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
B)   $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C)   $1,135 increase in aggregate demand when the crowding-out effect is taken into account.
D)   $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.E) All of the above
F) A) and B)

Question 6

The goal of monetary policy and fiscal policy is to

Accepted Answer

A)   offset the shifts in aggregate demand and thereby eliminate unemployment.
B)   offset shifts in aggregate demand and thereby stabilize the economy.
C)   enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)   enhance the shifts in aggregate demand and thereby increase economic growthE) B) and C)
F) A) and D)

Question 7

If the interest rate decreases

Accepted Answer

A)   or if the price level increases, then people will want to hold more money.
B)   or if the price level increases, then people will want to hold less money.
C)   or if the price level decreases, then people will want to hold more money.
D)   or if the price level decreases, then people will want to hold less money.E) A) and B)
F) B) and C)

Question 8

When households decide to hold more money,

Accepted Answer

A)   interest rates fall and investment decreases.
B)   interest rates fall and investment increases.
C)   interest rates rise and investment increases.
D)   interest rates rise and investment decreases.E) None of the above
F) All of the above

Question 9

Changes in the interest rate

Accepted Answer

A)   shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
B)   shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy.
C)   shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.
D)   do not shift aggregate demand.E) B) and C)
F) A) and D)

Question 10

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A)   an increase in investment spending.
B)   an increase in national savings.
C)   an increase in private savings.
D)   an increase in personal consumption.E) A) and B)
F) A) and C)

Question 11

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-.8) =...

Question 12

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou...

Question 13

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)   the smaller the MPC and the stronger the influence of income on money demand.
B)   the smaller the MPC and the weaker the influence of income on money demand.
C)   the larger the MPC and the stronger the influence of income on money demand.
D)   the larger the MPC and the weaker the influence of income on money demand.E) None of the above
F) A) and C)

Question 14

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)   interest rate
B)   money supply
C)   quantity of output
D)   price levelE) B) and D)
F) None of the above

Question 16

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

Question 17

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

Accepted Answer

A)   money demand curve rightward, so the interest rate increases.
B)   money demand curve rightward, so the interest rate decreases.
C)   money demand curve leftward, so the interest rate decreases.
D)   money demand curve leftward, so the interest rate increases.E) B) and C)
F) A) and D)

Question 18

Consider the following sequence of events: price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑
⇒ quantity of goods and services demanded ↓
Τhis sequence explains why the

Accepted Answer

A)   money-supply curve is vertical.
B)   aggregate-demand curve shifts leftward in response to a monetary injection.
C)   aggregate-demand curve shifts rightward in response to a monetary injection.
D)   aggregate-demand curve slopes downward.E) B) and C)
F) A) and D)

Question 19

As the MPC gets close to 1, the value of the multiplier approaches

Accepted Answer

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

Question 20

Which of the following is correct?

Accepted Answer

A)   A higher price level shifts money demand rightward.
B)   When money demand shifts rightward, the interest rate rises.
C)   A higher interest rate reduces the quantity of goods and services demanded.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

When households decide to hold more money,

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A reduction in personal income taxes increases Aggregate Demand through

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Which of the following is correct?

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Changes in the interest rate

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Macroeconomic forecasts are

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

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If the interest rate decreases

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Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

The goal of monetary policy and fiscal policy is to

Correct AnswerverifiedShow Answer

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Correct Answerverifieddemand, ou...View AnswerShow Answer

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. For this economy, an initial increase of $500 in government purchases translates into a

Correct AnswerverifiedShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/(1-MPC) = 1/(1-.8) =...View AnswerShow 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 MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Correct AnswerverifiedShow Answer

As the MPC gets close to 1, the value of the multiplier approaches

Correct AnswerverifiedShow Answer

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Correct AnswerverifiedShow Answer

Consider the following sequence of events: price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ Τhis sequence explains why the

Correct AnswerverifiedShow Answer

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The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _ and _.

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demand, ou...
View Answer

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The multiplier is 1/(1-MPC) = 1/(1-.8) =...
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