Question 1

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 2

If the multiplier is 6, then the MPC is

Accepted Answer

A)   0.16.
B)   0.83.
C)   0.71.
D)   0.86.E) All of the above
F) B) and C)

Question 3

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Accepted Answer

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

Question 4

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 5

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 6

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A)   smaller in closed economies than in open economies.
B)   larger in closed economies than in open economies.
C)   smaller in capitalist economies than in socialist economies.
D)   larger in capitalist economies than in socialist economies.E) C) and D)
F) All of the above

Question 7

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 8

Permanent tax cuts shift the AD curve

Accepted Answer

A)   farther to the right than do temporary tax cuts.
B)   not as far to the right as do temporary tax cuts.
C)   farther to the left than do temporary tax cuts.
D)   not as far to the left as do temporary tax cuts.E) B) and D)
F) C) and D)

Question 9

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) A) and B)
F) None of the above

Question 10

When there is an excess supply of money,

Accepted Answer

A)   people will try to get rid of money causing interest rates to rise. Investment increases.
B)   people will try to get rid of money causing interest rates to fall. Investment decreases.
C)   people will try to get rid of money causing interest rates to fall. Investment increases.
D)   people will try to get rid of money causing interest rates to rise. Investment decreases.E) A) and C)
F) None of the above

Question 11

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) A) and D)

Question 12

The wealth effect stems from the idea that a higher price level

Accepted Answer

A)   increases the real value of households' money holdings.
B)   decreases the real value of households' money holdings.
C)   increases the real value of the domestic currency in foreign-exchange markets.
D)   decreases the real value of the domestic currency in foreign-exchange markets.E) A) and B)
F) A) and C)

Question 13

When the interest rate is above the equilibrium level,

Accepted Answer

A)   the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)   people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 14

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

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) A) and B)
F) B) and D)

Question 15

People will want to hold less money if the price level

Accepted Answer

A)   increases or if the interest rate increases.
B)   decreases or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) All of the above
F) C) and D)

Question 16

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) A) and B)
F) B) and C)

Question 18

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then

Accepted Answer

A)   there will be an increase in the equilibrium quantity of goods and services demanded.
B)   there will be a decrease in the equilibrium interest rate.
C)   the aggregate-demand curve will shift to the right.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) B) and C)
F) None of the above

Question 19

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)   increase taxes or increase the money supply
B)   increase taxes or decrease the money supply
C)   decrease taxes or increase the money supply
D)   decrease taxes or decrease the money supplyE) A) and D)
F) A) and C)

Question 20

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by about $30.77 billion.
B)   left by about $57.1 billion.
C)   right by about $57.1 billion.
D)   right by about $30.77 billion.E) B) and C)
F) C) and D)

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

Which of the following shifts aggregate demand to the left?

Correct Answer
verified

If the multiplier is 6, then the MPC is

Correct Answer
verified

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct Answer
verified

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Correct Answer
verified

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

Correct Answer
verified

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct Answer
verified

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

Correct Answer
verified

People will want to hold less money if the price level

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

When there is an excess supply of money,

Correct Answer
verified

Permanent tax cuts shift the AD curve

Correct Answer
verified

When the interest rate is above the equilibrium level,

Correct Answer
verified

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 Answer
verified

The is the most important automatic stabilizer.

Correct Answer
verified

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct Answer
verified

Correct Answer
verified

The wealth effect stems from the idea that a higher price level

Correct Answer
verified

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Correct Answer
verified

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct Answer
verified

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

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

If the multiplier is 6, then the MPC is

Correct AnswerverifiedShow Answer

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

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

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

People will want to hold less money if the price level

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

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

When the interest rate is above the equilibrium level,

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

The is the most important automatic stabilizer.

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Correct AnswerverifiedShow Answer

Depending on the size of the multiplier and crowding-out effects, the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The wealth effect stems from the idea that a higher price level

Correct AnswerverifiedShow Answer

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Correct AnswerverifiedShow Answer

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct AnswerverifiedShow Answer

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Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
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Correct Answer
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