Question 1

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 1 to MD2? A) a decrease in the price level B) a decrease in the cost of borrowing C) an increase in the price level D) an increase in the cost of borrowing" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  a decrease in the price level
B)  a decrease in the cost of borrowing
C)  an increase in the price level
D)  an increase in the cost of borrowingE) A) and B)
F) A) and C)

Question 2

For the following questions, use the diagram below:
Figure 34-7. 
-Refer to Figure 34-7. 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) B) and D)
F) B) and C)

Question 3

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants.
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants.
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases.
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.E) B) and C)
F) A) and D)

Question 4

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households, the...

Question 5

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 3. Which of the following events would cause the equilibrium interest rate to decrease? A) The Federal Reserve increases the money supply. B) Money demand decreases. C) The price level decreases. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)  The Federal Reserve increases the money supply.
B)  Money demand decreases.
C)  The price level decreases.
D)  All of the above are correct.E) C) and D)
F) A) and D)

Question 6

If the Fed conducts open-market purchases, then which of the following quantities increase(s) ?

Accepted Answer

A)  interest rates and investment spending
B)  interest rates, but not investment spending
C)  investment spending, but not interest rates
D)  neither interest rates nor investment spendingE) A) and B)
F) All of the above

Question 7

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Accepted Answer

liquidity ...

Question 8

Figure 34-2. 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.
.  
-Refer to Figure 34-2. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output
B)  real output
C)  the opportunity cost of holding money
D)  the quantity of moneyE) None of the above
F) B) and C)

Question 9

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

Question 10

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Accepted Answer

A)  The actual MPC was larger than the MPC the aide used to compute the multiplier.
B)  The aide thought the tax cut would be permanent, but the actual tax cut was temporary.
C)  The increase in income shifted money demand less than the aide had anticipated.
D)  The increase in income resulted in investment rising more than the aide had anticipated.E) None of the above
F) A) and C)

Question 11

When the interest rate increases, 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) A) and B)
F) A) and C)

Question 12

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 13

Figure 34-6. 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 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is A) $75 billion. B) $40 billion. C) $30 billion. D) $20 billion." class="answers-bank-image d-inline" rel="preload" > 1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is A) $75 billion. B) $40 billion. C) $30 billion. D) $20 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-6. Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $75 billion.
B)  $40 billion.
C)  $30 billion.
D)  $20 billion.E) C) and D)
F) All of the above

Question 14

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally.
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt.
C)  explicitly set its target rate of inflation at zero.
D)  explicitly set its target rate of inflation well above zero.E) None of the above
F) B) and C)

Question 15

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Accepted Answer

A)  sell interest-bearing assets, causing the interest rate to decrease.
B)  sell interest-bearing assets, causing the interest rate to increase.
C)  buy interest-bearing assets, causing the interest rate to decrease.
D)  buy interest-bearing assets, causing the interest rate to increase.E) A) and B)
F) B) and D)

Question 16

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Accepted Answer

increase t...

Question 17

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 18

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by $180 billion.
B)  left by $500 billion.
C)  right by $180 billion.
D)  right by $400 billion.E) A) and C)
F) All of the above

Question 19

Figure 34-3. 
-Refer to Figure 34-3. Which of the following sequences (numbered arrows)  shows the logic of the interest-rate effect?

Accepted Answer

A)  1, 2, 3, 4
B)  1, 4, 3, 2
C)  3, 4, 2, 1
D)  3, 2, 1, 4E) A) and B)
F) A) and C)

Question 20

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)  the wealth effect
B)  the interest-rate effect
C)  the exchange-rate effect
D)  All of the above are correct.E) C) and D)
F) A) and B)

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

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Correct Answer
verified
increase t...
View Answer

Correct Answer
verified

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

Figure 34-3. -Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

If the Fed conducts open-market purchases, then which of the following quantities increase(s) ?

Correct Answer
verified

To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

Correct Answer
verified

During the economic downturn of 2008-2009, the Federal Reserve

Correct Answer
verified

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct Answer
verified

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
verified

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

Correct Answer
verified
liquidity ...
View Answer

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

Correct Answer
verified

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

Both monetary policy and fiscal policy affect aggregate demand.

Correct Answer
verified

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
verified

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease?

Correct Answer
verified

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Correct Answer
verified

Correct Answer
verified

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Correct Answer
verified

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

Correct Answer
verified

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

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Correct Answerverifiedincrease t...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Figure 34-3. -Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases, then which of the following quantities increase(s) ?

Correct AnswerverifiedShow Answer

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Correct AnswerverifiedShow Answer

During the economic downturn of 2008-2009, the Federal Reserve

Correct AnswerverifiedShow Answer

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Correct Answerverifiedliquidity ...View AnswerShow Answer

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

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

Both monetary policy and fiscal policy affect aggregate demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified
increase t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

Correct Answer
verified
liquidity ...
View Answer

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
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Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease?

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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