Question 1

Keynes argued that aggregate demand is

Accepted Answer

A)  stable, because the economy returns to long-run equilibrium.
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa.
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.
D)  unstable, because of long and variable policy lags that worsen economic fluctuations.E) B) and D)
F) B) and C)

Question 2

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 bondsE) B) and D)
F) A) and D)

Question 3

For the following questions, consult the diagram below:
Figure 34-1
 
-Refer to Figure 34-1.Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall.
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise.
C)  If the interest rate is 4 percent, the demand for goods will rise when the money market is in its new equilibrium.
D)  None of the above is correct.E) A) and B)
F) C) and D)

Question 4

If the interest rate increases

Accepted Answer

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

Question 5

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)  increase if there were a surplus in the money market.
B)  increase if there were a shortage in the money market.
C)  decrease if there were a surplus in the money market.
D)  decrease if there were a shortage in the money market.E) All of the above
F) None of the above

Question 6

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)  monetary policy can be described either in terms of the exchange rate or the interest rate.
C)  monetary policy must be described in terms of the money supply.
D)  monetary policy must be described in terms of the interest rate.E) B) and D)
F) None of the above

Question 7

In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is correct?

Accepted Answer

A)  In the short run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)  In the short run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)  In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; the price level is stuck.
D)  In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) B) and C)
F) A) and B)

Question 9

Assume that the MPC is 0.75.Assume that there is a multiplier effect and that the total crowding-out effect is $6 billion.An increase in government purchases of $10 billion will shift aggregate demand

Accepted Answer

A)  left by $24 billion.
B)  left by $36 billion.
C)  right by $34 billion.
D)  right by $36 billion.E) A) and C)
F) A) and B)

Question 10

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) B) and D)
F) All of the above

Question 11

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A)  increases by more than the change in the nominal interest rate.
B)  increases by the change in the nominal interest rate.
C)  decreases by the change in the nominal interest rate.
D)  decreases by more than the change in the nominal interest rate.E) B) and C)
F) B) and D)

Question 12

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 13

If the stock market crashes,

Accepted Answer

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

Question 14

For the following questions, consult the diagram below:
Figure 34-1
 
-Refer to Figure 34-1.At an interest rate of 4 percent there is excess

Accepted Answer

A)  money demand equal to the distance between a andb
B)  money demand equal to the distance between b and c.
C)  money supply equal to the distance between b and a.
D)  money supply equal to the distance between c and b.E) None of the above
F) A) and C)

Question 15

Permanent tax cuts shift the AD curve

Accepted Answer

A)  farther to the right than temporary tax cuts.
B)  less to the right than temporary tax cuts.
C)  farther to the left than temporary tax cuts.
D)  less to the left than temporary tax cuts.E) A) and B)
F) B) and C)

Question 16

If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Accepted Answer

A)  aggregate demand falls by 10/3 x $20 billion.
B)  aggregate demand falls by 7/3 x $20 billion.
C)  aggregate demand falls by 7/10 x $20 billion.
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 17

When the interest rate increases,the opportunity cost of holding money

Accepted Answer

A)  increases, so the quantity of money demanded increases.
B)  increases, so the quantity of money demanded decreases.
C)  decreases, so the quantity of money demanded increases.
D)  decreases, so the quantity of money demanded decreases.E) None of the above
F) B) and D)

Question 18

Which of the following is not a reason the aggregate demand curve slopes downward? As the price level increases

Accepted Answer

A)  firms may believe the relative price of their output has risen.
B)  real wealth declines.
C)  the interest rate increases.
D)  the exchange rate increases.E) All of the above
F) B) and C)

Question 19

Which of the following policies would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

Accepted Answer

A)  a decrease in the money supply
B)  a reduction in tax rates
C)  a decrease in government purchases
D)  None of the above is correct.E) None of the above
F) B) and C)

Question 20

If the Fed conducts open-market purchases which of these there increases in the short run: interest rates,prices,and investment spending?

Accepted Answer

A)  interest rates, prices, and investment spending
B)  interest rates and prices, not investment spending
C)  prices and investment spending, not interest rates
D)  interest rates, not prices nor investment spendingE) A) and C)
F) A) and D)

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

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

Keynes argued that aggregate demand is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases which of these there increases in the short run: interest rates,prices,and investment spending?

Correct AnswerverifiedShow Answer

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.At an interest rate of 4 percent there is excess

Correct AnswerverifiedShow Answer

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Correct AnswerverifiedShow Answer

When the interest rate increases,the opportunity cost of holding money

Correct AnswerverifiedShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

If the interest rate increases

Correct AnswerverifiedShow Answer

Which of the following policies would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If net exports fall $20 billion and the MPC is 7/10 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Correct AnswerverifiedShow Answer

Assume that the MPC is 0.75.Assume that there is a multiplier effect and that the total crowding-out effect is $6 billion.An increase in government purchases of $10 billion will shift aggregate demand

Correct AnswerverifiedShow Answer

For the following questions, consult the diagram below: Figure 34-1 -Refer to Figure 34-1.Which of the following is correct?

Correct AnswerverifiedShow Answer

If the stock market crashes,

Correct AnswerverifiedShow Answer

Which of the following is not a reason the aggregate demand curve slopes downward? As the price level increases

Correct AnswerverifiedShow Answer

In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.

Correct AnswerverifiedShow Answer

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified