Question 1

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A)   r = 0.03, P = 1.2
B)   r = 0.03, P = 1.3
C)   r = 0.04, P = 1.2
D)   r = 0.05, P = 0.9E) All of the above
F) B) and D)

Question 2

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 3

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

Question 4

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by $180 billion.
B)   left by $500 billion.
C)   right by $180 billion.
D)   right by $400 billion.E) B) and C)
F) A) and D)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

People choose to hold a larger quantity of money if

Accepted Answer

A)   the interest rate rises, which causes the opportunity cost of holding money to rise.
B)   the interest rate falls, which causes the opportunity cost of holding money to rise.
C)   the interest rate rises, which causes the opportunity cost of holding money to fall.
D)   the interest rate falls, which causes the opportunity cost of holding money to fall.E) All of the above
F) C) and D)

Question 7

In the early 1960s, the Kennedy administration made considerable use of

Accepted Answer

A)   fiscal policy to stimulate the economy.
B)   fiscal policy to slow down the economy.
C)   monetary policy to stimulate the economy.
D)   monetary policy to slow down the economy.E) A) and C)
F) A) and D)

Question 8

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) A) and D)
F) None of the above

Question 9

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Accepted Answer

A)   the quantity of output
B)   the amount of crowding out
C)   the interest rate
D)   the price levelE) A) and D)
F) A) and B)

Question 10

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) None of the above
F) All of the above

Question 11

If the interest rate decreases

Accepted Answer

A)   or if the price level increases, then people will want to hold more money.
B)   or if the price level increases, then people will want to hold less money.
C)   or if the price level decreases, then people will want to hold more money.
D)   or if the price level decreases, then people will want to hold less money.E) B) and D)
F) C) and D)

Question 12

If the Fed conducts open-market purchases, 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) All of the above
F) A) and B)

Question 13

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)   Keynesian in nature, and that his view is more valid for the long run than for the short run.
B)   classical in nature, and that his view is more valid for the long run than for the short run.
C)   Keynesian in nature, and that his view is more valid for the short run than for the long run.
D)   classical in nature, and that his view is more valid for the short run than for the long run.E) A) and B)
F) B) and C)

Question 14

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) All of the above
F) A) and B)

Question 15

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and 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) A) and B)
F) B) and C)

Question 16

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A)   Interest rates rise as the Fed reduces the quantity of money demanded.
B)   Interest rates fall as the Fed reduces the supply of money.
C)   People will want to hold less money as the cost of holding it falls.
D)   People will want to hold more money as the cost of holding it falls.E) B) and C)
F) A) and D)

Question 17

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

Question 18

An increase in taxes shifts the aggregate curve to the .

Accepted Answer

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

Question 19

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Accepted Answer

liquidity ...

Question 20

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m...

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be largest?

Correct AnswerverifiedShow Answer

Liquidity refers to

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the interest rate decreases

Correct AnswerverifiedShow Answer

People choose to hold a larger quantity of money if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Paul Samuelson, a famous economist, said that

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S. m...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Correct AnswerverifiedShow Answer

In the early 1960s, the Kennedy administration made considerable use of

Correct AnswerverifiedShow Answer

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Correct Answerverifiedliquidity ...View AnswerShow Answer

An increase in taxes shifts the aggregate curve to the .

Correct AnswerverifiedShow Answer

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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The wealth effect and the exchange-rate ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The Federal Reserve Bank conducts U.S. m...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

Correct Answer
verified
liquidity ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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