Question 1

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)   "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent."
B)   "Today the Fed lowered the discount rate by a quarter of a percentage point,and this action will force the federal funds rate to drop by the same amount."
C)   "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent."
D)   "Today the Fed took a step toward contracting aggregate demand,and this was done by lowering the federal funds rate to 5.25 percent."E) B) and D)
F) A) and C)

Question 2

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)   The price level rises,causing the interest rate to fall.
B)   The price level falls,causing the interest rate to fall.
C)   The money supply increases,causing the interest rate to fall.
D)   The money supply decreases,causing the interest rate to fall.E) A) and B)
F) A) and C)

Question 3

If the Federal Reserve decided to lower interest rates,it could

Accepted Answer

A)   buy bonds to lower the money supply.
B)   buy bonds to raise the money supply.
C)   sell bonds to lower the money supply.
D)   sell bonds to raise the money supply.E) C) and D)
F) B) and D)

Question 4

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is 0.60.Suppose the effect on aggregate demand from a change in taxes is 3/5 the size of the change from government expenditures.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)   Raise both taxes and expenditures by $40 billion dollars.
B)   Raise both taxes and expenditures by $40 billion dollars
C)   Reduce both taxes and expenditures by $10 billion dollars
D)   Reduce both taxes and expenditures by $10 billion dollars.E) A) and C)
F) A) and B)

Question 5

The process of the investment accelerator involves

Accepted Answer

A)   positive feedback from aggregate demand to investment.
B)   negative feedback from aggregate demand to investment.
C)   positive feedback from aggregate supply to investment.
D)   negative feedback from aggregate supply to investment.E) A) and B)
F) A) and C)

Question 6

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

Question 7

The positive feedback from aggregate demand to investment is called

Accepted Answer

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

Question 8

Other things the same,which of the following happens if the price level falls?

Accepted Answer

A)   Money demand shifts rightward.
B)   Initially there is an excess demand for money in the money market.
C)   The interest rate falls.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 9

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) A) and B)
F) B) and C)

Question 10

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)   monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)   monetary policy can be described either in terms of the exchange rate or the interest rate.
C)   monetary policy must be described in terms of the money supply.
D)   monetary policy must be described in terms of the interest rate.E) A) and C)
F) B) and D)

Question 11

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

Question 12

If the MPC = 3/5,then the government purchases multiplier is

Accepted Answer

A)   5/3.
B)   5/2.
C)  15.
D)  5.E) All of the above
F) A) and C)

Question 13

Which of the following sequences best represents the crowding-out effect?

Accepted Answer

A)   government purchases  ↑  ⟹  \uparrow\implies↑⟹ GDP  ↑  ⟹  \uparrow\implies↑⟹ supply of money  ↓  ⟹  \downarrow\implies↓⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓ 
B)   government purchases  ↓  ⟹  \downarrow\implies↓⟹ GDP  ↓  ⟹  \downarrow\implies↓⟹ demand for money  ↓  ⟹  \downarrow\implies↓⟹ equilibrium interest rate  ↓  ⟹  \downarrow\implies↓⟹ quantity of goods and services demanded  ↓\downarrow↓ 
C)   government purchases  ↑  ⟹  \uparrow\implies↑⟹ GDP  ↑  ⟹  \uparrow\implies↑⟹ demand for money  ↑  ⟹  \uparrow\implies↑⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓ 
D)   taxes ↑  ⟹  \uparrow\implies↑⟹ GDP  ↓  ⟹  \downarrow\implies↓⟹ demand for money  ↓  ⟹  \downarrow\implies↓⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded   ↓\downarrow↓E) A) and B)
F) A) and C)

Question 14

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A)   buy bonds and raise the reserve requirement
B)   buy bonds and lower the reserve requirement
C)   sell bonds and raise the reserve requirement
D)   sell bonds and lower the reserve requirementE) A) and D)
F) None of the above

Question 15

In the short run,an increase in the money supply causes interest rates to

Accepted Answer

A)   increase,and aggregate demand to shift right.
B)   increase,and aggregate demand to shift left.
C)   decrease,and aggregate demand to shift right.
D)   decrease,and aggregate demand to shift left.E) C) and D)
F) A) and D)

Question 16

Which among the following assets is the most liquid?

Accepted Answer

A)   capital goods
B)   stocks and bonds with a low risk
C)   real estate
D)   funds in a checking accountE) None of the above
F) A) and B)

Question 17

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 18

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) A) and C)
F) All of the above

Question 19

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)   the tax increase reduces consumption; the change in the interest rate reduces residential construction
B)   the tax increase reduces consumption; the change in the interest rate raises residential construction..
C)   the tax increase raises consumption; the change in the interest rate reduces residential construction.
D)   the tax increase raises consumption; the change in the interest rate reduces residential constructionE) A) and D)
F) A) and B)

Question 20

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

Accepted Answer

A)   price level  ↑  ⟹  \uparrow\implies↑⟹ demand for money  ↑  ⟹  \uparrow\implies↑⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓ 
B)   price level  ↑  ⟹  \uparrow\implies↑⟹ demand for money  ↓  ⟹  \downarrow\implies↓⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓ 
C)   price level  ↓  ⟹  \downarrow\implies↓⟹ demand for money  ↓  ⟹  \downarrow\implies↓⟹ equilibrium interest rate  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓ 
D)   price level  ↑  ⟹  \uparrow\implies↑⟹ equilibrium interest rate ↑  ⟹  \uparrow\implies↑⟹ demand for money  ↑  ⟹  \uparrow\implies↑⟹ quantity of goods and services demanded  ↓\downarrow↓E) None of the above
F) A) and B)

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

Stock prices often rise when the Fed raises interest rates.

Correct Answer
verified

If the Federal Reserve decided to lower interest rates,it could

Correct Answer
verified

The process of the investment accelerator involves

Correct Answer
verified

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Correct Answer
verified

The positive feedback from aggregate demand to investment is called

Correct Answer
verified

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

Correct Answer
verified

In the short run,an increase in the money supply causes interest rates to

Correct Answer
verified

Which of the following sequences best represents the crowding-out effect?

Correct Answer
verified

Which of the following events would shift money demand to the left?

Correct Answer
verified

In which of the following cases does the aggregate-demand curve shift to the right?

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

The theory of liquidity preference illustrates the principle that

Correct Answer
verified

Which of the following Fed actions would both increase the money supply?

Correct Answer
verified

Other things the same,which of the following happens if the price level falls?

Correct Answer
verified

Correct Answer
verified

If the MPC = 3/5,then the government purchases multiplier is

Correct Answer
verified

Which of the following events shifts aggregate demand rightward?

Correct Answer
verified

Which among the following assets is the most liquid?

Correct Answer
verified

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Correct Answer
verified

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct Answer
verified

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

Stock prices often rise when the Fed raises interest rates.

Correct AnswerverifiedShow Answer

If the Federal Reserve decided to lower interest rates,it could

Correct AnswerverifiedShow Answer

The process of the investment accelerator involves

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Correct AnswerverifiedShow Answer

The positive feedback from aggregate demand to investment is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run,an increase in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

Which of the following sequences best represents the crowding-out effect?

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

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

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

Which of the following Fed actions would both increase the money supply?

Correct AnswerverifiedShow Answer

Other things the same,which of the following happens if the price level falls?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the MPC = 3/5,then the government purchases multiplier is

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Correct AnswerverifiedShow Answer

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct AnswerverifiedShow Answer

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