Question 1

Which of the following is not an automatic stabilizer?

Accepted Answer

A)   the minimum wage
B)   the unemployment compensation system
C)   the federal income tax
D)   the welfare systemE) A) and C)
F) C) and D)

Question 2

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

A)   buy bonds to raise the interest rate
B)   buy bonds to lower the interest rate
C)   sell bonds to raise the interest rate
D)   sell bonds to raise the interest rateE) B) and C)
F) None of the above

Question 3

A tax increase has

Accepted Answer

A)   a multiplier effect but not a crowding out effect
B)   a crowding out effect but not a multiplier effect
C)   both a crowding out and multiplier effect
D)   neither a multiplier or crowding out effectE) None of the above
F) A) and C)

Question 4

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)   increase taxes
B)   increase government expenditures
C)   increase the money supply
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 5

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Accepted Answer

A)   aggregate demand falls by 2 x $40 billion.
B)   aggregate demand falls by 11/2 x $40 billion.
C)   aggregate demand falls by 11/9 x $40 billion.
D)   aggregate demand falls by 9/11 x $40 billion.E) A) and B)
F) A) and C)

Question 6

If the Fed conducts open-market purchases, the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) A) and B)
F) B) and C)

Question 7

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Accepted Answer

A)   increase taxes
B)   increase the money supply
C)   increase government expenditures
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 8

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)   0.2 and the multiplier is 1.25.
B)   0.8 and the multiplier is 5.
C)   0.2 and the multiplier is 1.25.
D)   0.8 and the multiplier is 8.E) All of the above
F) A) and B)

Question 9

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   the real-wage effectE) A) and D)
F) B) and C)

Question 10

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 11

In the long run, the level of output

Accepted Answer

A)   depends on the money supply.
B)   depends on the price level.
C)   is determined by supply-side factors.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 12

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A)   has no effect on aggregate demand.
B)   has more of an effect on aggregate demand than if households view it as permanent.
C)   has the same effect as when households view the cut as permanent.
D)   has less of an effect on aggregate demand than if households view it as permanent.E) A) and B)
F) A) and C)

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. Under the assumptions of the model,

Accepted Answer

A)   the quantity of goods and services demanded is higher at P2 than it is at P1.
B)   the quantity of money is higher at Y1 than it is at Y2.
C)   an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 14

An increase in government purchases is likely to

Accepted Answer

A)   decrease interest rates.
B)   reduce money demand.
C)   crowd out investment spending by business firms.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 15

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa...

Question 16

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 17

Figure 34-8 
-Refer to Figure 34-8. An increase in government purchases will

Accepted Answer

A)   shift aggregate demand from AD1 to AD2.
B)   shift aggregate demand from AD1 to AD3.
C)   cause movement from point A to point B along AD1.
D)   have no effect on aggregate demand.E) B) and C)
F) B) and D)

Question 18

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 19

Most economists believe that fiscal policy

Accepted Answer

A)   only affects aggregate demand and not aggregate supply.
B)   primarily affects aggregate demand.
C)   primarily effects aggregate supply.
D)   only affects aggregate supply and not aggregate demand.E) B) and D)
F) A) and C)

Question 20

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)   neither the level of output nor the level of prices.
B)   the level of output, but not in the level of prices.
C)   the level of prices, but not in the level of output.
D)   the level of output and in the level of prices.E) A) and D)
F) A) and C)

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

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct Answer
verified

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct Answer
verified

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Correct Answer
verified

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
verified

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Correct Answer
verified
supply, fa...
View Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct Answer
verified

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct Answer
verified

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Correct Answer
verified

A tax increase has

Correct Answer
verified

Correct Answer
verified

Most economists believe that fiscal policy

Correct Answer
verified

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct Answer
verified

If the Fed conducts open-market purchases, the money supply

Correct Answer
verified

Which of the following is not an automatic stabilizer?

Correct Answer
verified

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

In the long run, the level of output

Correct Answer
verified

If households view a tax cut as temporary, then the tax cut

Correct Answer
verified

An essential piece of the liquidity preference theory is the demand for money.

Correct Answer
verified

An increase in government purchases is likely to

Correct Answer
verified

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

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct AnswerverifiedShow Answer

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct AnswerverifiedShow Answer

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct AnswerverifiedShow Answer

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Correct AnswerverifiedShow Answer

A tax increase has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy

Correct AnswerverifiedShow Answer

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases, the money supply

Correct AnswerverifiedShow Answer

Which of the following is not an automatic stabilizer?

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

In the long run, the level of output

Correct AnswerverifiedShow Answer

If households view a tax cut as temporary, then the tax cut

Correct AnswerverifiedShow Answer

An essential piece of the liquidity preference theory is the demand for money.

Correct AnswerverifiedShow Answer

An increase in government purchases is likely to

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

Correct Answer
verified
supply, fa...
View Answer

Correct Answer
verified

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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