Question 1

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)   An increase in the price level decreases the interest rate.
B)   An increase in the price level increases the interest rate.
C)   An increase in the money supply decreases the interest rate.
D)   An increase in the money supply increases the interest rate.E) None of the above
F) B) and C)

Question 2

People are likely to want to hold more money if the interest rate

Accepted Answer

A)   increases, making the opportunity cost of holding money rise.
B)   increases, making the opportunity cost of holding money fall.
C)   decreases, making the opportunity cost of holding money rise.
D)   decreases, making the opportunity cost of holding money fall.E) A) and B)
F) B) and D)

Question 3

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 4

The multiplier is computed as MPC / 1 - MPC).

Accepted Answer

A) True 
 B)False

Question 5

When taxes increase, the interest rate

Accepted Answer

A)   increases, making the change in aggregate demand larger.
B)   increases, making the change in aggregate demand smaller
C)   decreases, making the change in aggregate demand larger.
D)   decreases, making the change in aggregate demand smaller.E) A) and B)
F) All of the above

Question 6

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 C)
F) None of the above

Question 7

If the MPC is 3/5 then the multiplier is

Accepted Answer

A)   4, so a $100 increase in government spending increases aggregate demand by $400.
B)   1.5, so a $100 increase in government spending increases output by $150.
C)   2.5, so a $100 increase in government spending increases aggregate demand by $250.
D)   1.67, so a $100 increase in government spending increases output by $166.67.E) A) and B)
F) None of the above

Question 8

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 9

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)   price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
B)   price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
C)   price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
D)   price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓E) B) and C)
F) C) and D)

Question 10

In the short run, open-market purchases

Accepted Answer

A)   increase investment and real GDP, and decrease nominal interest rates.
B)   increase real GDP and nominal interest rates, and decrease investment.
C)   increase investment and nominal interest rates, and decrease real GDP.
D)   decrease investment, nominal interest rates, and real GDP.E) A) and D)
F) B) and D)

Question 11

An example of an automatic stabilizer is

Accepted Answer

A)   unemployment benefits.
B)   a lowering of interest rates by the Fed.
C)   a decrease in money demand.
D)   a decrease in tax rates in response to a recession.E) B) and C)
F) None of the above

Question 12

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Accepted Answer

Automatic ...

Question 13

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P = P2,

Accepted Answer

A)   investment is lower than it is when P = P1.
B)   nominal output is higher than it is when P = P1.
C)   the expected rate of inflation is higher than it is when P = P1.
D)   the velocity of money is higher than it is when P = P1.E) B) and C)
F) A) and C)

Question 14

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)   the MPC is large and if the tax cut is permanent.
B)   the MPC is large and if the tax cut is temporary.
C)   the MPC is small and if the tax cut is permanent.
D)   the MPC is small and if the tax cut is temporary.E) B) and C)
F) A) and D)

Question 15

The Employment Act of 1946

Accepted Answer

A)   implies that the government should avoid being a cause of economic fluctuations.
B)   implies that the government should respond to changes in the private economy to stabilize aggregate demand.
C)   reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money.
D)   All of the above are correctE) C) and D)
F) All of the above

Question 16

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 r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, 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 quantity of goods and services demanded.
C)   there will be an increase in the equilibrium interest rate.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) A) and B)
F) B) and C)

Question 17

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)   shifts the aggregate demand curve to the right.
B)   has a multiplier effect.
C)   shifts the aggregate supply curve to the right, but this effect is likely more important in the long run.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 18

In the short run, open-market sales

Accepted Answer

A)   increase the price level and real GDP.
B)   decrease the price level and real GDP.
C)   increases the price level and decreases real GDP.
D)   decreases the price level and increases real GDP.E) C) and D)
F) B) and C)

Question 19

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

Accepted Answer

A)   buy bonds to increase bank reserves.
B)   buy bonds to decrease bank reserves.
C)   sell bonds to increase bank reserves.
D)   sell bonds to decrease bank reserves.E) All of the above
F) C) and D)

Question 20

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 B)
F) A) and C)

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

If the MPC is 3/5 then the multiplier is

Correct Answer
verified

Correct Answer
verified

In the short run, open-market purchases

Correct Answer
verified

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Correct Answer
verified
Automatic ...
View Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

An example of an automatic stabilizer is

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct Answer
verified

The multiplier is computed as MPC / 1 - MPC).

Correct Answer
verified

In the short run, open-market sales

Correct Answer
verified

A tax cut shifts the aggregate demand curve the farthest if

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

People are likely to want to hold more money if the interest rate

Correct Answer
verified

The Employment Act of 1946

Correct Answer
verified

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct Answer
verified

An increase in government spending on goods to build or repair infrastructure

Correct Answer
verified

When taxes increase, the interest rate

Correct Answer
verified

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

If the MPC is 3/5 then the multiplier is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the short run, open-market purchases

Correct AnswerverifiedShow Answer

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Correct AnswerverifiedAutomatic ...View AnswerShow Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of an automatic stabilizer is

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

The multiplier is computed as MPC / 1 - MPC).

Correct AnswerverifiedShow Answer

In the short run, open-market sales

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

People are likely to want to hold more money if the interest rate

Correct AnswerverifiedShow Answer

The Employment Act of 1946

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

An increase in government spending on goods to build or repair infrastructure

Correct AnswerverifiedShow Answer

When taxes increase, the interest rate

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Automatic ...
View Answer

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