Question 1

Which of the following is an example of crowding out?

Accepted Answer

A)   An increase in government spending increases interest rates, causing investment to fall.
B)   A decrease in private savings increases interest rates, causing investment to fall.
C)   A decrease in the money supply increases interest rates, causing investment to fall.
D)   An increase in taxes increases interest rates, causing investment to fall.E) C) and D)
F) None of the above

Question 2

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) A) and B)
F) A) and D)

Question 3

The opportunity cost of holding money

Accepted Answer

A)   decreases when the interest rate decreases, so people desire to hold more of it.
B)   decreases when the interest rate decreases, so people desire to hold less of it.
C)   increases when the interest rate decreases, so people desire to hold more of it.
D)   increases when the interest rate decreases, so people desire to hold less of it.E) B) and C)
F) A) and D)

Question 4

When the interest rate is below the equilibrium level,

Accepted Answer

A)   the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold.
B)   people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 5

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Accepted Answer

A)   buy bonds to raise interest rates.
B)   buy bonds to lower interest rates.
C)   sell bonds to raise interest rates.
D)   sell bonds to lower interest rates.E) None of the above
F) A) and B)

Question 6

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   the real-wage effectE) A) and D)
F) B) and C)

Question 7

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary, ...

Question 8

When the Fed increases the money supply, we expect

Accepted Answer

A)   interest rates and stock prices to rise.
B)   interest rates and stock prices to fall.
C)   interest rates to rise and stock prices to fall.
D)   interest rates to fall and stock prices to rise.E) All of the above
F) A) and D)

Question 9

Other things the same, during recessions taxes tend to

Accepted Answer

A)   rise. The rise in taxes stimulates aggregate demand.
B)   rise. The rise in taxes contracts aggregate demand.
C)   fall. The fall in taxes stimulates aggregate demand.
D)   fall. The fall in taxes contracts aggregate demand.E) None of the above
F) All of the above

Question 10

In the long run, changes in the money supply affect

Accepted Answer

A)   prices.
B)   output.
C)   unemployment rates.
D)   All of the above.E) C) and D)
F) B) and D)

Question 11

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Accepted Answer

The answer of When the Federal Funds rate is above...

Question 12

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)   rightward. In an attempt to stabilize the economy, the government could increase expenditures.
B)   rightward. In an attempt to stabilize the economy, the government could decrease expenditures.
C)   leftward. In an attempt to stabilize the economy, the government could increase expenditures.
D)   leftward. In an attempt to stabilize the economy, the government could decrease expenditures.E) B) and C)
F) All of the above

Question 13

Assume the MPC is 0.72. The multiplier is

Accepted Answer

A)   4.53.
B)   1.39.
C)   2.57.
D)   3.57.E) A) and C)
F) C) and D)

Question 14

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)   the interest rate on bonds.
B)   the inflation rate.
C)   the cost of converting bonds to a medium of exchange.
D)   the difference between the inflation rate and the interest rate on bonds.E) None of the above
F) B) and C)

Question 15

When the government reduces taxes, which of the following decreases?

Accepted Answer

A)   consumption
B)   take-home pay
C)   household saving
D)   None of the above is correct.E) A) and B)
F) B) and D)

Question 16

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

Question 17

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

Question 18

When the Fed decreases the money supply, we expect

Accepted Answer

A)   interest rates and stock prices to rise.
B)   interest rates and stock prices to fall.
C)   interest rates to rise and stock prices to fall.
D)   interest rates to fall and stock prices to rise.E) C) and D)
F) All of the above

Question 19

When government expenditures increase, the interest rate

Accepted Answer

A)   increases, making the change in aggregate demand larger.
B)   increases, making the change in aggregate demand smaller
C)   decreases, making the change in aggregate demand larger.
D)   decreases, making the change in aggregate demand smaller.E) A) and C)
F) None of the above

Question 20

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?

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

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct AnswerverifiedShow Answer

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Correct AnswerverifiedShow Answer

A reduction in U.S net exports would shift U.S. aggregate demand

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed would

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

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When the Fed decreases the money supply, we expect

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, we expect

Correct AnswerverifiedShow Answer

Other things the same, during recessions taxes tend to

Correct AnswerverifiedShow Answer

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

Which of the following is an example of crowding out?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

When the interest rate is below the equilibrium level,

Correct AnswerverifiedShow Answer

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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?

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When the government reduces taxes, which of the following decreases?

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When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Correct AnswerverifiedShow Answer

Assume the MPC is 0.72. The multiplier is

Correct AnswerverifiedShow Answer

Supply-side economists believe that changes in government purchases affect

Correct AnswerverifiedShow Answer

When government expenditures increase, the interest rate

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply affect

Correct AnswerverifiedShow Answer

Correct Answer
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The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
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monetary, ...
View Answer

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When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

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