Question 1

The logic of the multiplier effect applies

Accepted Answer

A)   only to changes in government spending.
B)   to any change in spending on any component of GDP.
C)   only to changes in the money supply.
D)   only when the crowding-out effect is sufficiently strong.E) B) and C)
F) All of the above

Question 2

Critics of stabilization policy argue that

Accepted Answer

A)   there is a lag between the time policy is passed and the time policy has an impact on the economy.
B)   the impact of policy may last longer than the problem it was designed to offset.
C)   policy can be a source of, instead of a cure for, economic fluctuations.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 3

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) All of the above

Question 4

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

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

Question 6

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

A)   sell interest-bearing assets, causing the interest rate to decrease.
B)   sell interest-bearing assets, causing the interest rate to increase.
C)   buy interest-bearing assets, causing the interest rate to decrease.
D)   buy interest-bearing assets, causing the interest rate to increase.E) None of the above
F) All of the above

Question 7

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Accepted Answer

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

Question 8

According to liquidity preference theory, if the price level

Accepted Answer

A)   fell, the interest rate would rise, and induce investment spending to rise.
B)   fell, the interest rate would fall, and induce investment spending to fall.
C)   rose, the interest rate would rise, and induce investment spending to fall.
D)   rose, the interest rate would fall, and induce investment spending to rise.E) A) and B)
F) A) and C)

Question 9

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 10

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 C)

Question 11

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 12

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A)   the interest-rate effect.
B)   the exchange-rate effect.
C)   the theory of liquidity preference.
D)   the wealth effect.E) All of the above
F) None of the above

Question 13

Which of the following reduces the interest rate?

Accepted Answer

A)   an increase in government expenditures and an increase in the money supply
B)   an increase in government expenditures and a decrease in the money supply
C)   a decrease in government expenditures and an increase in the money supply
D)   a decrease in government expenditures and a decrease in the money supplyE) A) and D)
F) B) and C)

Question 14

When households decide to hold more money,

Accepted Answer

A)   interest rates fall and investment decreases.
B)   interest rates fall and investment increases.
C)   interest rates rise and investment increases.
D)   interest rates rise and investment decreases.E) All of the above
F) B) and C)

Question 15

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. Under the assumptions of the model,

Accepted Answer

A)   the real interest rate is lower at Y2 than it is at Y1.
B)   the quantity of money is the same at Y1 as it is at Y2.
C)   the price level is lower at r2 than it is at r1.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 16

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 17

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause an) in interest rates...

Question 18

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

Question 19

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. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand increases.
C)   The price level decreases.
D)   All of the above are correct.E) A) and C)
F) B) and D)

Question 20

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

Accepted Answer

A)   r = 0.06, P = 1.2
B)   r = 0.05, P = 1.0
C)   r = 0.04, P = 1.2
D)   r = 0.06, P = 1.0E) All of the above
F) B) and D)

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

According to liquidity preference theory, if the price level

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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. Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
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If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct Answer
verified

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 Answer
verified

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

The logic of the multiplier effect applies

Correct Answer
verified

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Correct Answer
verified

The positive feedback from aggregate demand to investment is called

Correct Answer
verified

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct Answer
verified

Correct Answer
verified

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Correct Answer
verified

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct Answer
verified

Which of the following reduces the interest rate?

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct Answer
verified

When households decide to hold more money,

Correct Answer
verified

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

Correct Answer
verified

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

According to liquidity preference theory, if the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. Which of the following events would cause the equilibrium interest rate to increase?

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct AnswerverifiedShow Answer

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

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

The logic of the multiplier effect applies

Correct AnswerverifiedShow Answer

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Correct AnswerverifiedShow Answer

The positive feedback from aggregate demand to investment is called

Correct AnswerverifiedShow Answer

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Open-market purchases cause an) in interest rates and an) in real GDP in the short run.

Correct AnswerverifiedShow Answer

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct AnswerverifiedShow Answer

Which of the following reduces the interest rate?

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct AnswerverifiedShow Answer

When households decide to hold more money,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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The nominal interest rate on currency is...
View 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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Correct Answer
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Correct Answer
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The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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