Question 1

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates increase the quantity of money demanded.
B)  depends on the idea that increases in interest rates increase the quantity of money supplied.
C)  is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.
D)  is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.E) All of the above
F) A) and D)

Question 2

Other things the same,which of the following happens if the price level falls?

Accepted Answer

A)  Money demand shifts rightward.
B)  Initially there is an excess demand for money in the money market.
C)  The interest rate falls.
D)  None of the above is correct.E) B) and C)
F) B) and D)

Question 3

Automatic stabilizers

Accepted Answer

A)  increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)  are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)  are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 4

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 5

Figure 35-3. 
-Refer to Figure 35-3.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) None of the above
F) A) and D)

Question 6

Keynes argued that aggregate demand is

Accepted Answer

A)  stable,because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand.
B)  stable,because changes in consumption are mostly offset by changes in investment and vice versa.
C)  unstable,because waves of pessimism and optimism create fluctuations in aggregate demand.
D)  unstable,because of long and variable policy lags that worsen economic fluctuations.E) C) and D)
F) B) and D)

Question 7

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 8

Assuming no crowding-out,investment-accelerator,or multiplier effects,a $100 billion increase in government expenditures shifts aggregate demand

Accepted Answer

A)  right by more than $100 billion.
B)  right by $100 billion.
C)  left by more than $100 billion.
D)  left by $100 billion.E) None of the above
F) All of the above

Question 9

According to John Maynard Keynes,

Accepted Answer

A)  the demand for money in a country is determined entirely by that nation's central bank.
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country.
C)  the interest rate adjusts to balance the supply of,and demand for,money.
D)  the interest rate adjusts to balance the supply of,and demand for,goods and services.E) C) and D)
F) None of the above

Question 10

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Accepted Answer

A)  increase taxes
B)  increase the money supply
C)  increase government expenditures
D)  All of the above are correct.E) C) and D)
F) B) and C)

Question 12

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output?
 What might the government have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th...

Question 13

Figure 35-4.On the figure,MS represents money supply and MD represents money demand. 1.Let Y1 represent the corresponding quantity of goods and services demanded,and let P1 represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P1,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 quantity of goods and services demanded. C) there will be an increase in the equilibrium interest rate. 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 35-4.Suppose the current equilibrium interest rate is r1.Let Y1 represent the corresponding quantity of goods and services demanded,and let P1 represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P1,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 quantity of goods and services demanded.
C)  there will be an increase in the equilibrium interest rate.
D)  fewer firms will choose to borrow to build new factories and buy new equipment.E) None of the above
F) A) and D)

Question 14

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)  an "easy" monetary policy.
B)  a "passive" monetary policy.
C)  a "practical" monetary policy.
D)  an "active" monetary policy.E) C) and D)
F) A) and D)

Question 15

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level  ↑⇒\uarr\Rightarrow↑⇒ demand for money  ↑⇒\uarr\Rightarrow↑⇒ equilibrium interest rate  ↑⇒\uarr\Rightarrow↑⇒ quantity of goods and services demanded  ↓\downarrow↓ 
B)  price level  ↑⇒\uarr\Rightarrow↑⇒ demand for money  ↓⇒\downarrow\Rightarrow↓⇒ equilibrium interest rate  ↑⇒\uarr\Rightarrow↑⇒ quantity of goods and services demanded  ↓\downarrow↓ 
C)  price level  ↓⇒\downarrow\Rightarrow↓⇒ demand for money  ↓⇒\downarrow\Rightarrow↓⇒ equilibrium interest rate  ↑⇒\uarr\Rightarrow↑⇒ quantity of goods and services demanded  ↓\downarrow↓ 
D)  price level  ↑⇒\uarr\Rightarrow↑⇒ equilibrium interest rate  ↑⇒\uarr\Rightarrow↑⇒ demand for money  ↑⇒\uarr\Rightarrow↑⇒ quantity of goods and services demanded  ↓\downarrow↓E) A) and C)
F) B) and D)

Question 16

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

Question 17

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 18

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Accepted Answer

A) True 
 B)False

Question 19

The marginal propensity to consume (MPC) is defined as the fraction of

Accepted Answer

A)  extra income that a household consumes rather than saves.
B)  extra income that a household either consumes or saves.
C)  total income that a household consumes rather than saves.
D)  total income that a household either consumes or saves.E) B) and D)
F) A) and B)

Question 20

In the long run,fiscal policy influences

Accepted Answer

A)  saving,investment,and growth; in the short run,fiscal policy primarily influences technology and the production function.
B)  saving,investment,and growth; in the short run,fiscal policy primarily influences the aggregate demand for goods and services.
C)  technology and the production function; in the short run,fiscal policy primarily influences saving,investment,and growth.
D)  the aggregate demand for goods and services; in the short run,fiscal policy primarily influences technology and the production function.E) None of the above
F) A) and B)

Exam 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Figure 35-3. -Refer to Figure 35-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
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The interest-rate effect

Correct Answer
verified

Correct Answer
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The marginal propensity to consume (MPC) is defined as the fraction of

Correct Answer
verified

Assuming no crowding-out,investment-accelerator,or multiplier effects,a $100 billion increase in government expenditures shifts aggregate demand

Correct Answer
verified

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct Answer
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Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct Answer
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According to John Maynard Keynes,

Correct Answer
verified

Keynes argued that aggregate demand is

Correct Answer
verified

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Correct Answer
verified

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct Answer
verified

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Correct Answer
verified

Automatic stabilizers

Correct Answer
verified

The multiplier is computed as MPC / (1 - MPC).

Correct Answer
verified

Other things the same,which of the following happens if the price level falls?

Correct Answer
verified

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Correct Answer
verified

Open-market purchases

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

In the long run,fiscal policy influences

Correct Answer
verified

Exam 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Figure 35-3. -Refer to Figure 35-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The marginal propensity to consume (MPC) is defined as the fraction of

Correct AnswerverifiedShow Answer

Assuming no crowding-out,investment-accelerator,or multiplier effects,a $100 billion increase in government expenditures shifts aggregate demand

Correct AnswerverifiedShow Answer

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Correct AnswerverifiedAs consumers become pessimistic about th...View AnswerShow Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct AnswerverifiedShow Answer

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

According to John Maynard Keynes,

Correct AnswerverifiedShow Answer

Keynes argued that aggregate demand is

Correct AnswerverifiedShow Answer

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Correct AnswerverifiedShow Answer

Automatic stabilizers

Correct AnswerverifiedShow Answer

The multiplier is computed as MPC / (1 - MPC).

Correct AnswerverifiedShow Answer

Other things the same,which of the following happens if the price level falls?

Correct AnswerverifiedShow Answer

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Correct AnswerverifiedShow Answer

Open-market purchases

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

In the long run,fiscal policy influences

Correct AnswerverifiedShow Answer

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As consumers become pessimistic about th...
View Answer

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

Correct Answer
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