Question 1

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls.
B)  the price level falls or the money supply rises.
C)  the price level rises or the money supply falls.
D)  the price level rises or the money supply rises.E) None of the above
F) A) and D)

Question 2

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)  proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)  monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)  changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)  changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.E) All of the above
F) B) and D)

Question 3

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

Accepted Answer

A) True 
 B)False

Question 4

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Accepted Answer

A) True 
 B)False

Question 5

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

A)  the multiplier effect
B)  the crowding-out effect
C)  the accelerator effect
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 6

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 7

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)  buy bonds to lower the money supply.
B)  buy bonds to raise the money supply.
C)  sell bonds to lower the money supply.
D)  sell bonds to raise the money supply.E) B) and D)
F) All of the above

Question 8

An increase in taxes shifts the aggregate _____ curve to the _____.

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 9

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

Question 10

Which of the following statements is correct?

Accepted Answer

A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium.
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium.
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium.
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.E) A) and D)
F) B) and C)

Question 11

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)  left by $60 billion.
B)  left by $36 billion.
C)  right by $68 billion.
D)  right by $36 billion.E) B) and D)
F) A) and B)

Question 12

Automatic stabilizers

Accepted Answer

A)  increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)  are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)  are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)  All of the above are correct.E) C) and D)
F) B) and C)

Question 13

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

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

Question 14

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 15

According to classical macroeconomic theory,

Accepted Answer

A)  the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)  output is determined by the supplies of capital and labor and the available production technology.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 16

People choose to hold a smaller quantity of money if​

Accepted Answer

A)  ​the interest rate increases, which causes the opportunity cost of holding money to increase.
B)  ​the interest rate increases, which causes the opportunity cost of holding money to decrease.
C)  ​the interest rate decreases, which causes the opportunity cost of holding money to increase.
D)  ​the interest rate decreases, which causes the opportunity cost of holding money to decrease.E) B) and C)
F) None of the above

Question 17

Liquidity refers to

Accepted Answer

A)  the relation between the price and interest rate of an asset.
B)  the risk of an asset relative to its selling price.
C)  the ease with which an asset is converted into a medium of exchange.
D)  the sensitivity of investment spending to changes in the interest rate.E) All of the above
F) None of the above

Question 18

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 19

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right.
B)  In the long run, increases in the money supply increase prices, but not output.
C)  Recessions are associated with decreases in consumption, investment, and employment.
D)  Government should use fiscal policy to try to stabilize the economy.E) A) and B)
F) A) and C)

Question 20

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

Accepted Answer

A)  increase government spending.
B)  increase the money supply.
C)  decrease government spending.
D)  decrease the money supply.E) B) and D)
F) A) and D)

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

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

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Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

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Automatic stabilizers

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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 _____.

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Which of the following statements generates the greatest amount of disagreement among economists?

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The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

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Monetary policy affects the economy with a long lag, in part because

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An increase in taxes shifts the aggregate _____ curve to the _____.

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According to classical macroeconomic theory,

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The interest rate falls if

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Liquidity refers to

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People choose to hold a smaller quantity of money if​

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Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

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

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​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

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

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If the Federal Reserve decided to raise interest rates, it could

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Which of the following statements is correct?

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Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

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Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct AnswerverifiedShow Answer

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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
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The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

Correct Answer
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An increase in taxes shifts the aggregate _ curve to the _.

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People choose to hold a smaller quantity of money if

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According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.

Correct Answer
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