Question 1

If the government cuts the tax rate,workers get to keep

Accepted Answer

A)   less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right.
B)   less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.
C)   more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right.
D)   more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.E) A) and B)
F) None of the above

Question 2

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

Question 3

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 4

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

During recessions,the government tends to run a budget deficit.

Accepted Answer

A) True 
 B)False

Question 6

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)   increase aggregate demand in the short run and aggregate supply in the long run.
B)   increase aggregate supply in the short run and aggregate demand in the long run.
C)   only increase aggregate supply in the long run.
D)   only increase aggregate demand in the short run.E) A) and B)
F) A) and C)

Question 7

If the MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)   $80 billion.
B)   $125 billion.
C)   $500 billion.
D)   $800 billion.E) B) and C)
F) C) and D)

Question 8

Other things the same,as the price level rises,

Accepted Answer

A)   the interest rate rises causing aggregate demand to shift.
B)   the interest rate rises causing a movement along a given aggregate-demand curve.
C)   the interest rate falls causing aggregate demand to shift.
D)   the interest rate falls causing a movement along a given aggregate-demand curve.E) None of the above
F) A) and D)

Question 9

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) A) and D)
F) B) and D)

Question 10

If the Fed increases the money supply,

Accepted Answer

A)   the interest rate increases,which tends to raise stock prices.
B)   the interest rate increases,which tends to reduce stock prices.
C)   the interest rate decreases,which tends to raise stock prices.
D)   the interest rate decreases,which tends to reduce stock prices.E) B) and C)
F) All of the above

Question 11

According to liquidity preference theory,investment spending would rise if the price level

Accepted Answer

A)   fell,making the interest rate rise.
B)   fell,making the interest rate fall.
C)   rose,making the interest rate rise.
D)   rose,making the interest rate fall.E) A) and C)
F) A) and D)

Question 12

The multiplier effect

Accepted Answer

A)   and the crowding-out effect both amplify the effects of an increase in government expenditures.
B)   and the crowding-out effect both diminish the effects of an increase in government expenditures.
C)   diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects.
D)   amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects.E) C) and D)
F) All of the above

Question 13

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

For the following questions,use the diagram below:
Figure 34-6. 
-Refer to Figure 34-6.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) A) and B)
F) A) and C)

Question 15

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)   An increase in the price level decreases the interest rate.
B)   An increase in the price level increases the interest rate.
C)   An increase in the money supply decreases the interest rate.
D)   An increase in the money supply increases the interest rate.E) A) and D)
F) B) and C)

Question 16

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly,but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly,but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) A) and B)
F) A) and C)

Question 17

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is 0.60.Suppose the effect on aggregate demand from a change in taxes is 3/5 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 real GDP?

Accepted Answer

A)   Raise both taxes and expenditures by $40 billion dollars
B)   Raise both taxes and expenditures by $40 billion dollars.
C)   Reduce both taxes and expenditures by $10 billion dollars .
D)   Reduce both taxes and expenditures by $10 billion dollars.E) A) and D)
F) A) and C)

Question 18

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S.mo...

Question 19

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)   level of real output only.
B)   interest rate only.
C)   level of real output and by the interest rate.
D)   Federal Reserve.E) C) and D)
F) A) and D)

Question 20

Which of the following statements is correct for the short run?

Accepted Answer

A)   Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.
C)   Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for money;the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.E) All of the above
F) B) and D)

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

Opponents of active stabilization policy

Correct Answer
verified

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.If the economy is at point b,a policy to restore full employment would be

Correct Answer
verified

Correct Answer
verified

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct Answer
verified

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

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 MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Correct Answer
verified

Other things the same,as the price level rises,

Correct Answer
verified

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct Answer
verified

The multiplier effect

Correct Answer
verified

Which of the following statements is correct for the short run?

Correct Answer
verified

Both monetary policy and fiscal policy affect aggregate demand.

Correct Answer
verified

What is the difference between monetary policy and fiscal policy?

Correct Answer
verified
The Federal Reserve Bank conducts U.S.mo...
View Answer

According to liquidity preference theory,investment spending would rise if the price level

Correct Answer
verified

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

During recessions,the government tends to run a budget deficit.

Correct Answer
verified

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

If the government cuts the tax rate,workers get to keep

Correct Answer
verified

Monetary policy

Correct Answer
verified

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

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.If the economy is at point b,a policy to restore full employment would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

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

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 MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Correct AnswerverifiedShow Answer

Other things the same,as the price level rises,

Correct AnswerverifiedShow Answer

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the short run?

Correct AnswerverifiedShow Answer

Both monetary policy and fiscal policy affect aggregate demand.

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S.mo...View AnswerShow Answer

According to liquidity preference theory,investment spending would rise if the price level

Correct AnswerverifiedShow Answer

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

During recessions,the government tends to run a budget deficit.

Correct AnswerverifiedShow Answer

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

If the government cuts the tax rate,workers get to keep

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Federal Reserve Bank conducts U.S.mo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified