Question 1

If the government cuts the tax rate, workers get to keep

Accepted Answer

A)   less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
B)   less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
C)   more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
D)   more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.E) A) and B)
F) C) and D)

Question 2

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

Question 3

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

Question 4

In the long run, changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) A) and D)
F) B) and C)

Question 5

According to liquidity preference theory, a decrease in the price level shifts the

Accepted Answer

A)   money demand curve rightward, so the interest rate increases.
B)   money demand curve rightward, so the interest rate decreases.
C)   money demand curve leftward, so the interest rate decreases.
D)   money demand curve leftward, so the interest rate increases.E) C) and D)
F) A) and B)

Question 6

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)   the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)   the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)   the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)   the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) All of the above
F) None of the above

Question 7

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) C) and D)
F) All of the above

Question 8

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

The answer of The idea that aggregate demand fluctuates due...

Question 9

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou...

Question 10

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)   proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)   monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)   changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)   changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.E) A) and B)
F) C) and D)

Question 11

Which of the following statements is correct for the long run?

Accepted Answer

A)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) C) and D)
F) B) and C)

Question 12

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

Question 13

A decrease in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so decreases investment spending decreases.
C)   decreases the interest rate and so investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) A) and D)
F) None of the above

Question 14

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)   both liquidity preference theory and classical theory.
B)   neither liquidity preference theory nor classical theory.
C)   liquidity preference theory, but not classical theory.
D)   classical theory, but not liquidity preference theory.E) None of the above
F) B) and D)

Question 15

Figure 34-13 
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13 
-Refer to Figure 34-13. The...

Question 16

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)   if the money demand curve shifted right.
B)   if the Federal Reserve chose to increase the money supply.
C)   if the interest rate increased.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 17

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) None of the above
F) All of the above

Question 18

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) A) and B)
F) A) and C)

Question 19

According to liquidity preference theory, the money-supply curve is

Accepted Answer

A)   upward sloping.
B)   downward sloping.
C)   vertical.
D)   horizontal.E) B) and C)
F) None of the above

Question 20

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)   open-market rate.
B)   discount rate.
C)   preference rate.
D)   None of the above are correct.E) A) and C)
F) All of the above

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

Which of the following statements is correct for the long run?

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Supply-side economists believe that changes in government purchases affect

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According to liquidity preference theory, the money-supply curve is

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Which of the following events shifts aggregate demand rightward?

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

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The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Correct Answerverifieddemand, ou...View AnswerShow Answer

According to liquidity preference theory, the money-supply curve would shift rightward

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Monetary policy

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A surplus or shortage in the money market is eliminated by adjustments in the price level according to

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The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct AnswerverifiedShow Answer

If the government cuts the tax rate, workers get to keep

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Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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Monetary policy affects the economy with a long lag, in part because

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According to liquidity preference theory, if there were a surplus of money, then

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The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply affect

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A decrease in government spending

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According to liquidity preference theory, a decrease in the price level shifts the

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

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The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _ and _.

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demand, ou...
View Answer

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Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.

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