Question 1

To decrease the interest rate the Federal Reserve could

Accepted Answer

A)  buy bonds. The fall in the interest rate would increase investment spending.
B)  buy bonds. The fall in the interest rate would decrease investment spending.
C)  sell bonds. The fall in the interest rate would increase investment spending
D)  sell bonds. The fall in the interest rate would decrease investment spending.E) A) and D)
F) None of the above

Question 2

Changes in the interest rate help explain

Accepted Answer

A)  only the slope of, not shifts of aggregate demand.
B)  only shifts of, not the slope of aggregate demand.
C)  both the slope of and shifts of aggregate demand.
D)  neither the slope nor shifts of aggregate demand.E) A) and D)
F) A) and C)

Question 3

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The multiplier for this economy is

Accepted Answer

A)  2.85.
B)  1.53.
C)  4.00.
D)  7.00.E) A) and C)
F) B) and C)

Question 4

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1...

Question 5

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)  decrease the money supply
B)  increase government expenditures
C)  increase taxes
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 6

Figure 34-1 
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall.
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise.
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium.
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 7

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)  increases, interest rates increase, and investment decreases.
B)  increases, interest rates decrease, and investment increases.
C)  decreases, interest rates increase, and investment increases.
D)  decreases, interest rates decrease, and investment decreases.E) A) and B)
F) A) and C)

Question 8

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 9

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices.
B)  increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices.
C)  decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices.
D)  decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices.E) A) and D)
F) B) and C)

Question 10

In the short run, a decrease in the money supply causes interest rates to

Accepted Answer

A)  increase, and aggregate demand to shift right.
B)  increase, and aggregate demand to shift left.
C)  decrease, and aggregate demand to shift right.
D)  decrease, and aggregate demand to shift left.E) A) and D)
F) A) and C)

Question 11

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Accepted Answer

A)  increase government spending.
B)  increase the money supply.
C)  decrease government spending.
D)  decrease the money supply.E) A) and D)
F) A) and C)

Question 12

Figure 34-13 
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13 
-Refer to Figure 34-13. The...

Question 13

Other things the same, automatic stabilizers tend to

Accepted Answer

A)  raise expenditures during expansions and recessions.
B)  lower expenditures during expansions and recessions.
C)  raise expenditures during recessions and lower expenditures during expansions.
D)  raise expenditures during expansions and lower expenditures during recessions.E) B) and C)
F) A) and C)

Question 14

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)  $60 billion, but the effect would be larger if there were an investment accelerator.
B)  $60 billion, but the effect would be smaller if there were an investment accelerator.
C)  $45 billion, but the effect would be larger if there were an investment accelerator.
D)  $45 billion, but the effect would be smaller if there were an investment accelerator.E) C) and D)
F) B) and C)

Question 15

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 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 aggregate demand?

Accepted Answer

A)  Raise both taxes and expenditures by $5.56 billion dollars.
B)  Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars.
C)  Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars.
D)  Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.E) B) and D)
F) None of the above

Question 16

The short-run effects on the interest rate are

Accepted Answer

A)  shown equally well using either liquidity preference theory or classical theory.
B)  best shown using classical theory.
C)  best shown using liquidity preference theory.
D)  not shown well by either liquidity preference theory or classical theory.E) A) and D)
F) A) and C)

Question 17

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 18

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

Accepted Answer

A)  engaged in open-market operations.
B)  increased money demand.
C)  increased the real income.
D)  did any of the above.E) All of the above
F) C) and D)

Question 19

Monetary policy and fiscal policy influence

Accepted Answer

A)  output and prices in the short run and the long run.
B)  output and prices in the short run only.
C)  output in the short run and the long run.
D)  output in the short run only.E) B) and C)
F) A) and D)

Question 20

When taxes increase, interest rates​

Accepted Answer

A)  ​increase, making the change in aggregate demand smaller.
B)  ​increase, making the change in aggregate demand larger.
C)  ​decrease, making the change in aggregate demand smaller.
D)  ​decrease, making the change in aggregate demand larger.E) B) and C)
F) A) and D)

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

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Correct Answer
verified

Other things the same, automatic stabilizers tend to

Correct Answer
verified

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The multiplier for this economy is

Correct Answer
verified

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

Correct Answer
verified

The short-run effects on the interest rate are

Correct Answer
verified

Correct Answer
verified

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

Correct Answer
verified

To decrease the interest rate the Federal Reserve could

Correct Answer
verified

In the short run, a decrease in the money supply causes interest rates to

Correct Answer
verified

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct Answer
verified

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.

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

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Correct Answer
verified

When taxes increase, interest rates

Correct Answer
verified

Monetary policy and fiscal policy influence

Correct Answer
verified

The most important reason for the slope of the aggregate-demand curve is that as the price level

Correct Answer
verified

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct Answer
verified
An MPC of .9 means the multiplier = 1/(1...
View Answer

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct Answer
verified

Changes in the interest rate help explain

Correct Answer
verified

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

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

Other things the same, automatic stabilizers tend to

Correct AnswerverifiedShow Answer

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The multiplier for this economy is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The short-run effects on the interest rate are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Correct AnswerverifiedShow Answer

To decrease the interest rate the Federal Reserve could

Correct AnswerverifiedShow Answer

In the short run, a decrease in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct AnswerverifiedShow Answer

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

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

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Correct AnswerverifiedShow Answer

When taxes increase, interest rates​

Correct AnswerverifiedShow Answer

Monetary policy and fiscal policy influence

Correct AnswerverifiedShow Answer

The most important reason for the slope of the aggregate-demand curve is that as the price level

Correct AnswerverifiedShow Answer

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct AnswerverifiedAn MPC of .9 means the multiplier = 1/(1...View AnswerShow Answer

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

Changes in the interest rate help explain

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.

Correct Answer
verified

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

Correct Answer
verified

When taxes increase, interest rates

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An MPC of .9 means the multiplier = 1/(1...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified