Question 1

According to the Theory of Liquidity Preference,a fall in the _____ reduces the amount of money that people wish to hold.As a result,falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,a...

Question 2

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

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate,but not an increase in the price level
C)   an increase in the price level,but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) A) and D)
F) B) and C)

Question 3

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A)   only aggregate demand.
B)   only aggregate supply.
C)   both aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) A) and B)
F) All of the above

Question 4

If the MPC is 4/5,the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

The wealth-effect notes that a _____ price level increases the real value of households' wealth.The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 7

Figure 21-2.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.
 1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct? When P = P2, A)  investment is lower than it is when P = P1. B)  nominal output is higher than it is when P = P1. C)  the expected rate of inflation is higher than it is when P = P1. D)  the velocity of money is higher than it is when P = P1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-2.Assume the money market is always in equilibrium,and suppose r1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct? When P = P2,

Accepted Answer

A)   investment is lower than it is when P = P1.
B)   nominal output is higher than it is when P = P1.
C)   the expected rate of inflation is higher than it is when P = P1.
D)   the velocity of money is higher than it is when P = P1.E) A) and C)
F) B) and C)

Question 8

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 9

Open-market purchases

Accepted Answer

A)   increase investment and real GDP.
B)   decrease investment and increase real GDP.
C)   increase investment and decrease real GDP.
D)   decrease investment and real GDP.E) None of the above
F) A) and B)

Question 10

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 11

Critics of stabilization policy argue that

Accepted Answer

A)   policy affects aggregate demand quickly,but the effects on aggregate demand are long-lived.
B)   policy affects aggregate demand with a lag,and the effects on aggregate demand are long-lived.
C)   policy affects aggregate demand with a lag,but the effects are short-lived.
D)   policy does not affect aggregate demand.E) A) and B)
F) C) and D)

Question 12

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)   r = 0.06,P = 1.2
B)   r = 0.05,P = 1.0
C)   r = 0.04,P = 1.2
D)   r = 0.06,P = 1.0E) B) and C)
F) A) and D)

Question 13

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

A)   $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.
B)   $166.75.For this economy,an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand.
C)   $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.
D)   $170.20.For this economy,an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand.E) A) and C)
F) C) and D)

Question 14

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

Question 15

If expected inflation is constant,then when the nominal interest rate falls,the real interest rate

Accepted Answer

A)   falls by more than the change in the nominal interest rate.
B)   falls by the change in the nominal interest rate.
C)   rises by the change in the nominal interest rate.
D)   rises by more than the change in the nominal interest rate.E) All of the above
F) A) and B)

Question 16

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Accepted Answer

A)   3.2 for government purchases and 2.0 for tax cuts.
B)   2.4 for government purchases and 1.4 for tax cuts.
C)   1.6 for government purchases and 1.0 for tax cuts.
D)   1.6 for government purchases and 0.4 for tax cuts.E) B) and C)
F) None of the above

Question 17

According to the theory of liquidity preference,if the interest rate rises

Accepted Answer

A)   people want to hold more money.This response is shown by moving to the right along the money demand curve.
B)   people want to hold more money.This response is shown by shifting the money demand curve right.
C)   people want to hold less money.This response is shown by moving to the left along the money demand curve.
D)   people want to hold less money.This response is shown by shifting the money demand curve left.E) A) and B)
F) B) and C)

Question 18

Figure 21-3. 1 to Y2? A)  consumption B)  investment C)  net exports D)  government spending" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-3.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) C) and D)
F) B) and D)

Question 19

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Accepted Answer

A)   Your aunt puts more money in her savings account.
B)   Foreign citizens decide to buy fewer U.S.bonds.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 20

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

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

Correct Answer
verified

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

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
verified

According to the theory of liquidity preference,if the interest rate rises

Correct Answer
verified

Supply-side economists believe that changes in government purchases affect

Correct Answer
verified

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Correct Answer
verified

Open-market purchases

Correct Answer
verified

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

Correct Answer
verified

The wealth-effect notes that a _ price level increases the real value of households' wealth.The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Figure 21-3. -Refer to Figure 21-3.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

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct Answer
verified

If the MPC is 4/5,the multiplier is 5/4.

Correct Answer
verified

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Correct Answer
verified
The wealth effect and the exchange-rate ...
View Answer

According to the Theory of Liquidity Preference,a fall in the _ reduces the amount of money that people wish to hold.As a result,falling interest rates stimulates investment spending and aggregate _.

Correct Answer
verified

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Correct Answer
verified

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

Correct Answer
verified

Critics of stabilization policy argue that

Correct Answer
verified

If expected inflation is constant,then when the nominal interest rate falls,the real interest rate

Correct Answer
verified

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

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,if the interest rate rises

Correct AnswerverifiedShow Answer

Supply-side economists believe that changes in government purchases affect

Correct AnswerverifiedShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

Open-market purchases

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The wealth-effect notes that a _____ price level increases the real value of households' wealth.The larger real wealth _____ the quantity of goods and services demanded.

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

Figure 21-3. -Refer to Figure 21-3.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

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Correct AnswerverifiedShow Answer

If the MPC is 4/5,the multiplier is 5/4.

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow Answer

According to the Theory of Liquidity Preference,a fall in the _____ reduces the amount of money that people wish to hold.As a result,falling interest rates stimulates investment spending and aggregate _____.

Correct AnswerverifiedShow Answer

Other things the same,which of the following responses would we expect from an increase in U.S.interest rates?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

If expected inflation is constant,then when the nominal interest rate falls,the real interest rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

The wealth-effect notes that a _ price level increases the real value of households' wealth.The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
verified

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Figure 21-3. -Refer to Figure 21-3.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
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Correct Answer
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Correct Answer
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Correct Answer
verified
The wealth effect and the exchange-rate ...
View Answer

According to the Theory of Liquidity Preference,a fall in the _ reduces the amount of money that people wish to hold.As a result,falling interest rates stimulates investment spending and aggregate _.

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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