Question 1

In the long run, changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) C) and D)
F) A) and D)

Question 2

If the MPC is 2/3 then the multiplier is

Accepted Answer

A)   3/2, so a $100 increase in government spending increases aggregate demand by $150.
B)   3/2, so a $100 increase in government spending increases aggregate supply by $150.
C)   3, so a $100 increase in government spending increases aggregate demand by $300.
D)   3, so a $100 increase in government spending increases aggregate supply by $300.E) A) and B)
F) All of the above

Question 3

Figure 16-3.
 1 to Y2? A)  consumption B)  investment C)  net exports D)  government spending " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) A) and D)
F) B) and C)

Question 4

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)   The price level rises.
B)   The price level falls.
C)   The money supply falls.
D)   None of the above is correct.E) A) and D)
F) C) and D)

Question 5

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)   buy bonds to raise interest rates.
B)   buy bonds to lower interest rates.
C)   sell bonds to raise interest rates.
D)   sell bonds to lower interest rates.E) None of the above
F) B) and C)

Question 6

Consider the following sequence of events: price level  ↑\uparrow↑⇒\Rightarrow⇒ demand for money  ↑\uparrow↑⇒\Rightarrow⇒ equilibrium interest rate  ↑\uparrow↑ 
 ⇒\Rightarrow⇒ quantity of goods and services demanded  ↓\downarrow↓ 
 This sequence explains why the

Accepted Answer

A)   money-supply curve is vertical.
B)   aggregate-demand curve shifts leftward in response to a monetary injection.
C)   aggregate-demand curve shifts rightward in response to a monetary injection.
D)   aggregate-demand curve slopes downward. E) A) and B)
F) B) and C)

Question 7

Opponents of active stabilization policy

Accepted Answer

A)   generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)   generally agree that fiscal policy has no impact in the long run.
C)   believe some effects of monetary policy may be long-lived.
D)   think the Fed should simply try to fine tune the economy.E) A) and C)
F) None of the above

Question 8

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.8, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)   by $5 billion
B)   by $10 billion
C)   by $20 billion
D)   by $50 billionE) None of the above
F) C) and D)

Question 9

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)   increased interest rates, and the economy avoided a recession.
B)   increased interest rates, but the economy was unable to avoid a recession.
C)   decreased interest rates, and the economy avoided a recession.
D)   decreased interest rates, but the economy was unable to avoid a recession.E) B) and C)
F) A) and B)

Question 10

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)   the tax increase reduces consumption; the change in the interest rate reduces residential construction
B)   the tax increase reduces consumption; the change in the interest rate raises residential construction
C)   the tax increase raises consumption; the change in the interest rate reduces residential construction
D)   the tax increase raises consumption; the change in the interest rate reduces residential construction.E) A) and B)
F) All of the above

Question 11

In recent years, the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)   size of the money supply.
B)   growth rate of the money supply.
C)   federal funds rate.
D)   discount rate.E) None of the above
F) B) and C)

Question 12

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)   increase if there were a surplus in the money market.
B)   increase if there were a shortage in the money market.
C)   decrease if there were a surplus in the money market.
D)   decrease if there were a shortage in the money market.E) All of the above
F) C) and D)

Question 13

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)   the Federal Reserve could increase the money supply by buying bonds.
B)   the Federal Reserve could increase the money supply by selling bonds.
C)   the Federal Reserve could decrease the money supply by buying bonds.
D)   the Federal Reserve could decrease the money supply by selling bonds.E) A) and C)
F) B) and C)

Question 14

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) None of the above
F) B) and C)

Question 15

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

Accepted Answer

A)   has no affect on aggregate demand.
B)   has more of an affect on aggregate demand than if households view it as permanent.
C)   has the same affect as when households view the cut as permanent.
D)   has less of an affect on aggregate demand than if households view it as permanent.E) A) and D)
F) None of the above

Question 16

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
 3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate. C)  the aggregate-demand curve will shift to the right. 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 16-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, 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 interest rate.
C)   the aggregate-demand curve will shift to the right.
D)   fewer firms will choose to borrow to build new factories and buy new equipment.E) None of the above
F) B) and C)

Question 17

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)   increase by $250 billion.
B)   increase by $333 billion.
C)   increase by $360 billion.
D)   None of the above are correct.E) A) and B)
F) B) and D)

Question 18

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)   the crowding-out effect
B)   the multiplier effect
C)   the exchange-rate effect
D)   the interest-rate effectE) A) and C)
F) A) and D)

Question 19

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following shifts aggregate demand to the right?

Accepted Answer

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

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

Correct Answer
verified

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct Answer
verified

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct Answer
verified

The interest rate would fall and the quantity of money demanded would

Correct Answer
verified

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

Correct Answer
verified

In the long run, changes in the money supply affect

Correct Answer
verified

Correct Answer
verified

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct Answer
verified

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Correct Answer
verified

If the MPC is 2/3 then the multiplier is

Correct Answer
verified

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct Answer
verified

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

Correct Answer
verified

Consider the following sequence of events: price level $\uparrow$ $\Rightarrow$ demand for money $\uparrow$ $\Rightarrow$ equilibrium interest rate $\uparrow$ $\Rightarrow$ quantity of goods and services demanded $\downarrow$  This sequence explains why the

Correct Answer
verified

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Correct Answer
verified

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct AnswerverifiedShow Answer

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct AnswerverifiedShow Answer

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply affect

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for the

Correct AnswerverifiedShow Answer

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Correct AnswerverifiedShow Answer

If the MPC is 2/3 then the multiplier is

Correct AnswerverifiedShow Answer

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider the following sequence of events: price level ↑\uparrow↑⇒\Rightarrow⇒ demand for money ↑\uparrow↑⇒\Rightarrow⇒ equilibrium interest rate ↑\uparrow↑ ⇒\Rightarrow⇒ quantity of goods and services demanded ↓\downarrow↓  This sequence explains why the

Correct AnswerverifiedShow Answer

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Correct AnswerverifiedShow Answer

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Correct AnswerverifiedShow Answer

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Consider the following sequence of events: price level $\uparrow$ $\Rightarrow$ demand for money $\uparrow$ $\Rightarrow$ equilibrium interest rate $\uparrow$ $\Rightarrow$ quantity of goods and services demanded $\downarrow$  This sequence explains why the

Correct Answer
verified

Figure 16-3. -Refer to Figure 16-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

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