Question 1

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) B) and C)
F) C) and D)

Question 2

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)   increase, so the money supply increases.
B)   increase, so the money supply decreases.
C)   decrease, so the money supply increases.
D)   decrease, so the money supply decreases.E) A) and D)
F) A) and C)

Question 3

Monetary policy and fiscal policy influence

Accepted Answer

A)   output and prices in the short run and the long run.
B)   output and prices in the short run only.
C)   output in the short run and the long run.
D)   output in the short run only.E) C) and D)
F) A) and B)

Question 4

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)   level of real output only.
B)   interest rate only.
C)   level of real output and by the interest rate.
D)   Federal Reserve.E) B) and C)
F) A) and C)

Question 5

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) A) and C)

Question 6

When the interest rate decreases, the opportunity cost of holding money

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded increases.
D)   decreases, so the quantity of money demanded decreases.E) None of the above
F) A) and B)

Question 7

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)   monetary policy.
B)   crowding out.
C)   the investment accelerator.
D)   the multiplier.E) A) and B)
F) All of the above

Question 8

Figure 34-7 
-Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)   an increase in government purchases.
B)   a decrease in net exports.
C)   households saving a smaller fraction of their income.
D)   a decrease in the price level.E) A) and B)
F) B) and C)

Question 9

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates increase the quantity of money demanded.
B)   depends on the idea that increases in interest rates increase the quantity of money supplied.
C)   is the most important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.
D)   is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.E) A) and B)
F) None of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 B)
F) C) and D)

Question 13

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) A) and B)
F) A) and C)

Question 14

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)   changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) A) and D)
F) All of the above

Question 15

If the MPC = 4/5, then the government purchases multiplier is

Accepted Answer

A)   5/4.
B)   4/5.
C)   5.
D)   20.E) B) and C)
F) C) and D)

Question 16

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into an)

Accepted Answer

A)   $570 increase in aggregate demand when the crowding-out effect is taken into account.
B)   $800 increase in aggregate demand when the crowding-out effect is taken into account.
C)   $1,400 increase in aggregate demand in the absence of the crowding-out effect.
D)   $800 increase in aggregate demand in the absence of the crowding-out effect.E) A) and C)
F) C) and D)

Question 17

If the interest rate is below the Fed's target, the Fed should

Accepted Answer

A)   buy bonds to increase bank reserves.
B)   buy bonds to decrease bank reserves.
C)   sell bonds to increase bank reserves.
D)   sell bonds to decrease bank reserves.E) A) and C)
F) A) and D)

Question 18

The interest rate falls if

Accepted Answer

A)   either money demand or money supply shifts right.
B)   money demand shifts right or money supply shifts left.
C)   either money demand or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) A) and D)
F) None of the above

Question 19

A tax cut shifts aggregate demand

Accepted Answer

A)   by more than the amount of the tax cut.
B)   by the same amount as the tax cut.
C)   by less than the tax cut.
D)   None of the above is necessarily correct.E) B) and C)
F) A) and D)

Question 20

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)   shifts rightward by $100 billion.
B)   shifts rightward by $51 billion.
C)   shifts rightward by $170 billion.
D)   shifts rightward by $72.8 billion.E) B) and C)
F) C) and D)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If the MPC = 4/5, then the government purchases multiplier is

Correct Answer
verified

A tax cut shifts aggregate demand

Correct Answer
verified

When the interest rate decreases, the opportunity cost of holding money

Correct Answer
verified

Monetary policy and fiscal policy influence

Correct Answer
verified

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Correct Answer
verified

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct Answer
verified

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

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

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

Correct Answer
verified

The interest rate falls if

Correct Answer
verified

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

Correct Answer
verified

When the Fed sells government bonds, the reserves of the banking system

Correct Answer
verified

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

Correct Answer
verified

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct Answer
verified

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct Answer
verified

If the interest rate is below the Fed's target, the Fed should

Correct Answer
verified

People hold money primarily because it

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If the MPC = 4/5, then the government purchases multiplier is

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

When the interest rate decreases, the opportunity cost of holding money

Correct AnswerverifiedShow Answer

Monetary policy and fiscal policy influence

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Correct AnswerverifiedShow Answer

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct AnswerverifiedShow Answer

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

Figure 34-7 -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the Fed sells government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed should

Correct AnswerverifiedShow Answer

People hold money primarily because it

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

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