Question 1

When there is an increase in government expenditures,which of the following raises investment spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither the investment accelerator or crowding outE) B) and C)
F) C) and D)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

For the following questions,use the diagram below:
Figure 24-7. 
-Refer to Figure 24-7.If the economy is at point b,a policy to restore full employment would be

Accepted Answer

A)   an increase in the money supply.
B)   a decrease in government purchases.
C)   an increase in taxes.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 4

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) C) and D)
F) A) and D)

Question 5

When the Fed decreases the money supply,we expect

Accepted Answer

A)   interest rates and stock prices to rise.
B)   interest rates and stock prices to fall.
C)   interest rates to rise and stock prices to fall.
D)   interest rates to fall and stock prices to rise.E) All of the above
F) B) and D)

Question 6

According to liquidity preference theory,if the price level decreases,then

Accepted Answer

A)   the interest rate falls because money demand shifts right.
B)   the interest rate falls because money demand shifts left.
C)   the interest rate rises because money supply shifts right.
D)   the interest rate rises because money supply shifts left.E) C) and D)
F) A) and B)

Question 7

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

Accepted Answer

A)   the accelerator effect.
B)   the multiplier effect.
C)   the chain effect.
D)   the bandwagon effect.E) A) and B)
F) None of the above

Question 8

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
B)   depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
C)   is responsible for the downward slope of the money-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 9

An increase in government purchases is likely to

Accepted Answer

A)   decrease interest rates.
B)   result in a net decrease in aggregate demand.
C)   crowd out investment spending by business firms.
D)   decrease money demand.E) A) and C)
F) C) and D)

Question 10

The marginal propensity to consume (MPC) is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) B) and C)
F) All of the above

Question 11

Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)   the smaller the MPC and the stronger the influence of income on money demand.
B)   the smaller the MPC and the weaker the influence of income on money demand.
C)   the larger the MPC and the stronger the influence of income on money demand.
D)   the larger the MPC and the weaker the influence of income on money demand.E) C) and D)
F) None of the above

Question 12

Figure 24-5.On the figure,MS represents money supply and MD represents money demand. 
-Refer to Figure 24-5.What is measured along the vertical axis of the graph?

Accepted Answer

A)   the quantity of output
B)   the amount of crowding out
C)   the interest rate
D)   the price levelE) All of the above
F) C) and D)

Question 13

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)   contribute to a more stable level of output.
B)   mitigate the crowding-out effect.
C)   eliminate the economy's automatic stabilizers.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 14

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) None of the above
F) A) and D)

Question 15

When government expenditures increase,the interest rate

Accepted Answer

A)   increases,making the change in aggregate demand larger.
B)   increases,making the change in aggregate demand smaller
C)   decreases,making the change in aggregate demand larger.
D)   decreases,making the change in aggregate demand smaller.E) All of the above
F) B) and C)

Question 16

People choose to hold a smaller quantity of money if

Accepted Answer

A)   the interest rate rises,which causes the opportunity cost of holding money to rise.
B)   the interest rate falls,which causes the opportunity cost of holding money to rise.
C)   the interest rate rises,which causes the opportunity cost of holding money to fall.
D)   the interest rate falls,which causes the opportunity cost of holding money to fall.E) A) and B)
F) A) and D)

Question 17

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A)   wealth effect,exchange-rate effect,interest-rate effect
B)   exchange-rate effect,interest-rate effect,wealth effect
C)   interest-rate effect,wealth effect,exchange-rate effect
D)   interest-rate effect,exchange-rate effect,wealth effectE) A) and D)
F) B) and D)

Question 18

According to liquidity preference theory,the money-supply curve would shift rightward

Accepted Answer

A)   if the money demand curve shifted right.
B)   if the Federal Reserve chose to increase the money supply.
C)   if the interest rate increased.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 19

According to liquidity preference theory,the money-supply curve is

Accepted Answer

A)   upward sloping.
B)   downward sloping.
C)   vertical.
D)   horizontal.E) B) and D)
F) B) and C)

Question 20

If it were not for the automatic stabilizers in the U.S.economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.E) A) and D)
F) B) and C)

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

An increase in government purchases is likely to

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According to liquidity preference theory,if the price level decreases,then

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According to liquidity preference theory,the money-supply curve would shift rightward

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According to liquidity preference theory,the money-supply curve is

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Figure 24-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-5.What is measured along the vertical axis of the graph?

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

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The interest-rate effect

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When there is an increase in government expenditures,which of the following raises investment spending?

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If it were not for the automatic stabilizers in the U.S.economy,

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Assume there is a multiplier effect,some crowding out,and no accelerator effect.An increase in government expenditures changes aggregate demand more,

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The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

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

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For the following questions,use the diagram below: Figure 24-7. -Refer to Figure 24-7.If the economy is at point b,a policy to restore full employment would be

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When the Fed decreases the money supply,we expect

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People choose to hold a smaller quantity of money if

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

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When government expenditures increase,the interest rate

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It is likely that a constitutional amendment that required the government always to run a balanced budget would

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The marginal propensity to consume (MPC) is defined as the fraction of

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With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

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