Question 1

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

Question 2

Monetary policy and fiscal policy influence

Accepted Answer

A)   output and prices in the short run and the long run.
B)   output and prices in the short run only.
C)   output in the short run and the long run.
D)   output in the short run only.E) All of the above
F) None of the above

Question 3

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

Question 4

If the stock market booms, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by increasing the money supply.
B)   aggregate supply increases, which the Fed could offset by increasing the money supply.
C)   aggregate demand increases, which the Fed could offset by decreasing the money supply.
D)   aggregate supply increases, which the Fed could offset by decreasing the money supply.E) C) and D)
F) B) and D)

Question 5

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 6

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

Question 7

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

Question 8

People hold money primarily because it

Accepted Answer

A)   increases in value when there is inflation.
B)   serves as a store of value.
C)   serves as a medium of exchange.
D)   functions as a unit of account.E) B) and C)
F) A) and C)

Question 9

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 10

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) A) and C)
F) B) and C)

Question 11

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)   $300 billion and $180 billion
B)   $300 billion and $300 billion
C)   $500 billion and $300 billion
D)   $500 billion and $500 billionE) A) and D)
F) A) and C)

Question 12

Figure 34-9 
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Accepted Answer

A)   requires the central bank to purchase government bonds, which will increase the money supply.
B)   is a reduction in government purchases.
C)   is a reduction in taxes.
D)   requires the central bank to sell government bonds, which will reduce the money supply.E) None of the above
F) C) and D)

Question 13

Fiscal policy affects the economy

Accepted Answer

A)   only in the short run.
B)   only in the long run.
C)   in both the short and long run.
D)   in neither the short nor the long run.E) A) and B)
F) C) and D)

Question 14

Which of the following is an example of an increase in government purchases?

Accepted Answer

A)   The government builds new roads.
B)   The Federal Reserve purchases government bonds.
C)   The government decreases personal income taxes.
D)   The government increases unemployment insurance benefit payments.E) A) and D)
F) B) and C)

Question 15

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

Accepted Answer

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

Question 16

If the Fed conducts open-market sales, the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) A) and B)
F) A) and C)

Question 17

Which of the following shifts aggregate demand to the right?

Accepted Answer

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

Question 18

If the interest rate is above the Fed's target, the Fed should

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

Question 19

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   1/1+MP
C)  .
B)   1 - MP
C)  /MPC.
C)   1/MPC.
D)   1/1 - MP
C)  .E) B) and C)
F) A) and D)

Question 20

Figure 34-3 
-Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

A)   the supply of money
B)   the demand for money
C)   the rate of inflation
D)   Aggregate Demand.E) C) and D)
F) All of the above

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the money supply decreases the interest rate in the short run.

Correct Answer
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Correct Answer
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The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct Answer
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If the stock market booms, then

Correct Answer
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People hold money primarily because it

Correct Answer
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When the interest rate is above the equilibrium level,

Correct Answer
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If the interest rate is above the Fed's target, the Fed should

Correct Answer
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Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct Answer
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If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

Correct Answer
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Fiscal policy affects the economy

Correct Answer
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The Employment Act of 1946 states that

Correct Answer
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The multiplier effect

Correct Answer
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If the Fed conducts open-market sales, the money supply

Correct Answer
verified

Which of the following is an example of an increase in government purchases?

Correct Answer
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Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Correct Answer
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Monetary policy and fiscal policy influence

Correct Answer
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Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Correct Answer
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Which of the following shifts aggregate demand to the right?

Correct Answer
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The multiplier for changes in government spending is calculated as

Correct Answer
verified

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

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct AnswerverifiedShow Answer

If the stock market booms, then

Correct AnswerverifiedShow Answer

People hold money primarily because it

Correct AnswerverifiedShow Answer

When the interest rate is above the equilibrium level,

Correct AnswerverifiedShow Answer

If the interest rate is above the Fed's target, the Fed should

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fiscal policy affects the economy

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales, the money supply

Correct AnswerverifiedShow Answer

Which of the following is an example of an increase in government purchases?

Correct AnswerverifiedShow Answer

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Correct AnswerverifiedShow Answer

Monetary policy and fiscal policy influence

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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