Question 1

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.E) A) and D)
F) B) and D)

Question 2

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)   An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels.
B)   An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels.
C)   An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises.
D)   An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels.E) None of the above
F) A) and B)

Question 4

According to the theory of liquidity preference,

Accepted Answer

A)   if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)   if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)   the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 5

Figure 16-5. On the figure, MS represents money supply and MD represents money demand.
 2 to MD1 is consistent with which of the following sets of events? A)  The government cuts taxes, resulting in an increase in people's incomes. B)  The government reduces government spending, resulting in a decrease in people's incomes. C)  The Federal Reserve increases the supply of money, which decreases the interest rate. D)  All of the above are correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)   The government cuts taxes, resulting in an increase in people's incomes.
B)   The government reduces government spending, resulting in a decrease in people's incomes.
C)   The Federal Reserve increases the supply of money, which decreases the interest rate.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 6

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 7

Shifts in aggregate demand affect the price level in

Accepted Answer

A)   the short run but not in the long run.
B)   the long run but not in the short run.
C)   both the short and long run.
D)   neither the short nor long run.E) A) and B)
F) A) and C)

Question 8

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

Question 9

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

Question 10

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 D)
F) A) and C)

Question 11

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 12

The Employment Act of 1946 states that

Accepted Answer

A)   the Fed should use monetary policy only to control the rate of inflation.
B)   the government should promote full employment and production.
C)   the government should periodically increase the minimum wage and unemployment insurance benefits.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 13

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 14

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) All of the above
F) None of the above

Question 15

Suppose there were a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) A) and C)
F) B) and D)

Question 16

In recent years, the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)   bank reserves.
B)   the monetary growth rate.
C)   the exchange rate.
D)   the federal funds rate.E) A) and C)
F) B) and C)

Question 17

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)   an increase in government expenditures or a decrease in the price level
B)   a decrease in government expenditures or an increase in the price level
C)   an increase in government expenditures, but not a change in the price level
D)   a decrease in the price level, but not an increase in government expendituresE) None of the above
F) A) and D)

Question 18

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor...

Question 19

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Accepted Answer

A)   the multiplier effect
B)   the crowding-out effect
C)   the accelerator effect
D)   None of the above is correct.E) All of the above
F) C) and D)

Question 20

An increase in the U.S. interest rate

Accepted Answer

A)   raises the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to a depreciation of the U.S. dollar.E) B) and C)
F) All of the above

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

Shifts in aggregate demand affect the price level in

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

Suppose there were a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

If it were not for the automatic stabilizers in the U.S. economy,

Correct AnswerverifiedShow Answer

Both monetary policy and fiscal policy affect aggregate demand.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

Explain how unemployment insurance acts as an automatic stabilizer.

Correct AnswerverifiedAs income falls, unemployment rises. Mor...View AnswerShow Answer

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

Other things the same, as the price level rises,

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

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
As income falls, unemployment rises. Mor...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified