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

Question 2

Figure 21-4. On the figure, MS represents money supply and MD represents money demand. 1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then A) there will be an increase in the equilibrium quantity of goods and services demanded. B) there will be a decrease in the equilibrium quantity of goods and services demanded. C) there will be an increase in the equilibrium interest rate. D) fewer firms will choose to borrow to build new factories and buy new equipment." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-4. Suppose the current equilibrium interest rate is r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded.
B)  there will be a decrease in the equilibrium quantity of goods and services demanded.
C)  there will be an increase in the equilibrium interest rate.
D)  fewer firms will choose to borrow to build new factories and buy new equipment.E) None of the above
F) A) and B)

Question 3

According to liquidity preference theory, an increase 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) B) and C)
F) All of the above

Question 4

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A)  move toward deficit.
B)  move toward surplus.
C)  move toward balance.
D)  not necessarily move the budget in any particular direction.E) None of the above
F) B) and D)

Question 5

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 6

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)  always decrease government tax revenue.
B)  shifts the aggregate supply curve to the right.
C)  provides no incentive for people to work more.
D)  would decrease consumption.E) A) and B)
F) A) and C)

Question 7

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

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) A) and D)

Question 8

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int...

Question 9

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 dollarsE) B) and C)
F) A) and D)

Question 10

People hold money primarily because it

Accepted Answer

A)  has a guaranteed nominal return.
B)  serves as a store of value.
C)  can directly be used to buy goods and services.
D)  functions as a unit of account.E) C) and D)
F) A) and C)

Question 11

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)  open-market rate.
B)  discount rate.
C)  preference rate.
D)  None of the above are correct.E) B) and C)
F) A) and B)

Question 12

The exchange-rate effect is based, in part, on the idea that

Accepted Answer

A)  a decrease in the price level reduces the interest rate.
B)  an increase in the price level causes investors to move some of their funds overseas.
C)  an increase in the price level causes domestic goods to become less expensive relative to foreign goods.
D)  a decrease in the price level reduces spending on net exports.E) B) and C)
F) A) and B)

Question 13

If the MPC = 0.85, then the government purchases multiplier is about

Accepted Answer

A)  1.18.
B)  3.33.
C)  6.67.
D)  8.5.E) C) and D)
F) B) and D)

Question 14

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 21-2. The multiplier for this economy is

Accepted Answer

A)  6.00.
B)  6.25.
C)  8.40
D)  9.00.E) B) and C)
F) B) and D)

Question 15

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 C)

Question 16

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

Accepted Answer

A)  buy bonds to increase the money supply.
B)  buy bonds to decrease the money supply.
C)  sell bonds to increase the money supply.
D)  sell bonds to decrease the money supply.E) All of the above
F) B) and D)

Question 17

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

Question 18

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets.
B)  must be described in terms of money-supply targets.
C)  can be described either in terms of the money supply or in terms of the interest rate.
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.E) None of the above
F) A) and B)

Question 19

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Accepted Answer

A)  right by more than $100 billion.
B)  right by $100 billion.
C)  left by more than $100 billion.
D)  left by $100 billion.E) A) and B)
F) A) and C)

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

According to liquidity preference theory, an increase in the price level shifts the

Correct Answer
verified

Which of the following is not an automatic stabilizer?

Correct Answer
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Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. The multiplier for this economy is

Correct Answer
verified

An increase in the money supply decreases the interest rate in the short run.

Correct Answer
verified

A tax increase has

Correct Answer
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The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct Answer
verified

If the MPC = 0.85, then the government purchases multiplier is about

Correct Answer
verified

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

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

Correct Answer
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Correct Answer
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During recessions, automatic stabilizers tend to make the government's budget

Correct Answer
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Monetary policy

Correct Answer
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Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct Answer
verified
When the money supply increases, the int...
View Answer

The Employment Act of 1946

Correct Answer
verified

Supply-side economists believe that a reduction in the tax rate

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

The exchange-rate effect is based, in part, on the idea that

Correct Answer
verified

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Correct Answer
verified

People hold money primarily because it

Correct Answer
verified

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

According to liquidity preference theory, an increase in the price level shifts the

Correct AnswerverifiedShow Answer

Which of the following is not an automatic stabilizer?

Correct AnswerverifiedShow Answer

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. The multiplier for this economy is

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

A tax increase has

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

If the MPC = 0.85, then the government purchases multiplier is about

Correct AnswerverifiedShow 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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During recessions, automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases, the int...View AnswerShow Answer

The Employment Act of 1946

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The exchange-rate effect is based, in part, on the idea that

Correct AnswerverifiedShow Answer

Assuming no crowding-out, investment-accelerator, or multiplier effects, a $100 billion increase in government expenditures shifts aggregate demand

Correct AnswerverifiedShow Answer

People hold money primarily because it

Correct AnswerverifiedShow Answer

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When the money supply increases, the int...
View Answer

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