Question 1

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) None of the above
F) All of the above

Question 2

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 B)
F) C) and D)

Question 3

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)   sales of government bonds, which reduces interest rates and causes people to hold less money.
B)   purchases of government bonds, which reduces interest rates and causes people to hold less money.
C)   purchases of government bonds, which reduces interest rates and causes people to hold more money.
D)   sales of government bonds, which reduces interest rates and causes people to hold more money.E) B) and D)
F) B) and C)

Question 4

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)   president George W. Bush
B)   president John F. Kennedy
C)   economist John Maynard Keynes
D)   former chairman of the Federal Reserve System William McChesney MartinE) A) and C)
F) B) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

Question 7

Scenario 34-2. The following facts apply to a small, imaginary economy.
-Consumption spending is $6,720 when income is $8,000.
-Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)   A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect.
B)   A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.
C)   An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect.
D)   An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding- out effect.E) A) and D)
F) B) and C)

Question 8

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

Question 9

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 10

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)   an increase in the money supply and an increase in government purchases.
B)   an increase in the money supply and a decrease in government purchases.
C)   a decrease in the money supply and an increase in government purchases.
D)   a decrease in the money supply and a decrease in government purchases.E) A) and D)
F) All of the above

Question 11

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

Question 12

The short-run effects on the interest rate are

Accepted Answer

A)   shown equally well using either liquidity preference theory or classical theory.
B)   best shown using classical theory.
C)   best shown using liquidity preference theory.
D)   not shown well by either liquidity preference theory or classical theory.E) A) and D)
F) B) and D)

Question 13

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 14

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)   increasing the money supply, which raises interest rates.
B)   increasing the money supply, which lowers interest rates.
C)   decreasing the money supply, which raises interest rates.
D)   decreasing the money supply, which lowers interest rates.E) None of the above
F) A) and D)

Question 15

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

The positive feedback from aggregate demand to investment is called

Accepted Answer

A)   the investment multiplier.
B)   the crowding-out effect.
C)   the investment accelerator.
D)   the crowding-in multiplier.E) C) and D)
F) B) and D)

Question 17

People will want to hold more money if the price level

Accepted Answer

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

Question 18

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 19

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)   the wealth effect.
B)   the exchange-rate effect.
C)   the interest-rate effect.
D)   misperceptions theory.E) None of the above
F) B) and D)

Question 20

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

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Scenario 34-2. The following facts apply to a small, imaginary economy. -Consumption spending is $6,720 when income is $8,000. -Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
verified

Correct Answer
verified

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct Answer
verified

The short-run effects on the interest rate are

Correct Answer
verified

The positive feedback from aggregate demand to investment is called

Correct Answer
verified

People will want to hold more money if the price level

Correct Answer
verified

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Correct Answer
verified

The Employment Act of 1946

Correct Answer
verified

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

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

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

Correct Answer
verified

The theory of liquidity preference is most helpful in understanding

Correct Answer
verified

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Correct Answer
verified

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Correct Answer
verified

People will want to hold less money if the price level

Correct Answer
verified

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct Answer
verified

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct Answer
verified

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct Answer
verified

People hold money primarily because it

Correct Answer
verified

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Scenario 34-2. The following facts apply to a small, imaginary economy. -Consumption spending is $6,720 when income is $8,000. -Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct AnswerverifiedShow Answer

The short-run effects on the interest rate are

Correct AnswerverifiedShow Answer

The positive feedback from aggregate demand to investment is called

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Correct AnswerverifiedShow Answer

The Employment Act of 1946

Correct AnswerverifiedShow Answer

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

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

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

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Correct AnswerverifiedShow Answer

People will want to hold less money if the price level

Correct AnswerverifiedShow Answer

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct AnswerverifiedShow Answer

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct AnswerverifiedShow Answer

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct AnswerverifiedShow Answer

People hold money primarily because it

Correct AnswerverifiedShow Answer

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