Question 1

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

Question 2

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)  an increase in government expenditures
B)  an increase in net exports
C)  an increase in investment spending
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 3

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so.
B)  the President requested them to do so.
C)  the money supply is hard to measure with sufficient precision.
D)  changes in the interest rate change aggregate demand, but changes in the money supply do not.E) C) and D)
F) B) and C)

Question 4

The multiplier effect

Accepted Answer

A)  and the crowding-out effect both amplify the effects of an increase in government expenditures.
B)  and the crowding-out effect both diminish the effects of an increase in government expenditures.
C)  diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects.
D)  amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.E) C) and D)
F) B) and C)

Question 5

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

Question 6

When the Fed increases the money supply, we expect

Accepted Answer

A)  interest rates and stock prices to rise.
B)  interest rates and stock prices to fall.
C)  interest rates to rise and stock prices to fall.
D)  interest rates to fall and stock prices to rise.E) A) and B)
F) B) and D)

Question 7

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...

Question 8

A 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) None of the above

Question 9

Most economists believe that fiscal policy

Accepted Answer

A)  only affects aggregate demand and not aggregate supply.
B)  primarily affects aggregate demand.
C)  primarily effects aggregate supply.
D)  only affects aggregate supply and not aggregate demand.E) C) and D)
F) A) and D)

Question 10

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) None of the above
F) B) and D)

Question 11

Paul Samuelson, a famous economist, said that

Accepted Answer

A)  "the bond market has predicted zero out of the past nine recessions."
B)  "the stock market has predicted zero out of the past nine recessions."
C)  "the bond market has predicted nine out of the past five recessions."
D)  "the stock market has predicted nine out of the past five recessions."E) B) and D)
F) C) and D)

Question 12

For the following questions, use the diagram below:
Figure 34-7. 1 to AD2 as a result of A) an increase in government purchases. B) a decrease in net exports. C) households saving a smaller fraction of their income. D) a decrease in the price level." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)  an increase in government purchases.
B)  a decrease in net exports.
C)  households saving a smaller fraction of their income.
D)  a decrease in the price level.E) A) and B)
F) None of the above

Question 13

According to the theory of liquidity preference, if output decreases

Accepted Answer

A)  people want to hold more money. This response is shown as a movement along the money demand curve.
B)  people want to hold more money. This response is shown as a shift of the money demand curve.
C)  people want to hold less money. This response is shown as a movement along the money demand curve.
D)  people want to hold less money. This response is shown as a shift of the money demand curve.E) None of the above
F) A) and C)

Question 14

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)  monetary policy.
B)  crowding out.
C)  the investment accelerator.
D)  the multiplier.E) B) and D)
F) B) and C)

Question 15

Other things the same, as the price level rises,

Accepted Answer

A)  the interest rate rises causing aggregate demand to shift.
B)  the interest rate rises causing a movement along a given aggregate-demand curve.
C)  the interest rate falls causing aggregate demand to shift.
D)  the interest rate falls causing a movement along a given aggregate-demand curve.E) A) and B)
F) A) and C)

Question 16

The logic of the multiplier effect applies

Accepted Answer

A)  only to changes in government spending.
B)  to any change in spending on any component of GDP.
C)  only to changes in the money supply.
D)  only when the crowding-out effect is sufficiently strong.E) A) and D)
F) C) and D)

Question 17

If the stock market booms, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by purchasing bonds.
B)  aggregate supply increases, which the Fed could offset by selling bonds.
C)  aggregate demand increases, which the Fed could offset by selling bonds.
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply.E) C) and D)
F) All of the above

Question 18

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 19

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 20

If the stock market crashes, then

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) A) and D)

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

Paul Samuelson, a famous economist, said that

Correct Answer
verified

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct Answer
verified

According to liquidity preference theory, if there were a surplus of money, then

Correct Answer
verified

According to the theory of liquidity preference, if output decreases

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct Answer
verified

If the stock market booms, then

Correct Answer
verified

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct Answer
verified

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

Correct Answer
verified

Most economists believe that fiscal policy

Correct Answer
verified

The multiplier effect

Correct Answer
verified

Other things the same, as the price level rises,

Correct Answer
verified

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 Answer
verified

Correct Answer
verified

The logic of the multiplier effect applies

Correct Answer
verified

When the Fed increases the money supply, we expect

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

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct Answer
verified

A goal of monetary policy and fiscal policy is to

Correct Answer
verified

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

Paul Samuelson, a famous economist, said that

Correct AnswerverifiedShow Answer

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if there were a surplus of money, then

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if output decreases

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct AnswerverifiedShow Answer

If the stock market booms, then

Correct AnswerverifiedShow Answer

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

Other things the same, as the price level rises,

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

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Correct AnswerverifiedShow Answer

The logic of the multiplier effect applies

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, we expect

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

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct AnswerverifiedShow Answer

A goal of monetary policy and fiscal policy is to

Correct AnswerverifiedShow Answer

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