Question 1

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)   an increase in the money supply and an increase in government purchases.
B)   an increase in the money supply and a decrease in government purchases.
C)   a decrease in the money supply and an increase in government purchases.
D)   a decrease in the money supply and a decrease in government purchases.E) A) and C)
F) All of the above

Question 2

If taxes

Accepted Answer

A)   increase, then consumption increases, and aggregate demand shifts leftward.
B)   increase, then consumption decreases, and aggregate demand shifts rightward.
C)   decrease, then consumption increases, and aggregate demand shifts rightward.
D)   decrease, then consumption decreases, and aggregate demand shifts leftward.E) None of the above
F) All of the above

Question 3

Permanent tax cuts shift the AD curve

Accepted Answer

A)   farther to the right than do temporary tax cuts.
B)   not as far to the right as do temporary tax cuts.
C)   farther to the left than do temporary tax cuts.
D)   not as far to the left as do temporary tax cuts.E) B) and C)
F) All of the above

Question 4

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)   Increases in the money supply shift aggregate demand to the right.
B)   In the long run, increases in the money supply increase prices, but not output.
C)   Recessions are associated with decreases in consumption, investment, and employment.
D)   Government should use fiscal policy to try to stabilize the economy.E) A) and B)
F) A) and C)

Question 5

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

Question 6

Paul Samuelson, a famous economist, said that

Accepted Answer

A)   "the bond market has predicted zero out of the past nine recessions."
B)   "the stock market has predicted zero out of the past nine recessions."
C)   "the bond market has predicted nine out of the past five recessions."
D)   "the stock market has predicted nine out of the past five recessions."E) A) and B)
F) B) and C)

Question 7

If people decide to hold less money, then

Accepted Answer

A)   money demand decreases, there is an excess supply of money, and interest rates rise.
B)   money demand decreases, there is an excess supply of money, and interest rates fall.
C)   money demand increases, there is an excess demand for money, and interest rates fall.
D)   money demand increases, there is an excess demand for money, and interest rates rise.E) A) and B)
F) A) and C)

Question 8

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)   increase money demand and interest rates. Investment declines.
B)   increase money demand and interest rates. Investment increases.
C)   increase money demand, reduce interest rates, and investment increases.
D)   decrease money demand and interest rates. Investment declines.E) A) and B)
F) A) and C)

Question 9

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)   the wealth effect.
B)   the exchange-rate effect.
C)   the interest-rate effect.
D)   misperceptions theory.E) B) and C)
F) A) and C)

Question 10

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 11

Which of the following is correct?

Accepted Answer

A)   A higher price level shifts money demand rightward.
B)   When money demand shifts rightward, the interest rate rises.
C)   A higher interest rate reduces the quantity of goods and services demanded.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 12

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and 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 B)
F) B) and C)

Question 13

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 B)
F) None of the above

Question 14

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of implementing fiscal policy.
C)   the time it takes for changes in government spending or taxes to affect the interest rate.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 15

The interest rate falls if

Accepted Answer

A)   the price level falls or the money supply falls.
B)   the price level falls or the money supply rises.
C)   the price level rises or the money supply falls.
D)   the price level rises or the money supply rises.E) B) and C)
F) All of the above

Question 16

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

Question 17

Figure 34-8 
-Refer to Figure 34-8. An increase in taxes will

Accepted Answer

A)   shift aggregate demand from AD1 to AD2.
B)   shift aggregate demand from AD1 to AD3.
C)   cause movement from point A to point B along AD1.
D)   have no effect on aggregate demand.E) A) and B)
F) All of the above

Question 18

If the MPC = 0.75, then the government purchases multiplier is about

Accepted Answer

A)   1.33.
B)   7.
C)   4.
D)   3.E) A) and D)
F) None of the above

Question 19

An increase in taxes shifts the aggregate curve to the .

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 20

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)   $1480
B)   $480
C)   $160
D)   None of the above is correct.E) None of the above
F) C) and D)

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct Answer
verified

If people decide to hold less money, then

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Correct Answer
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An increase in taxes shifts the aggregate curve to the .

Correct Answer
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If taxes

Correct Answer
verified

Paul Samuelson, a famous economist, said that

Correct Answer
verified

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct Answer
verified

Permanent tax cuts shift the AD curve

Correct Answer
verified

The lag problem associated with fiscal policy is due mostly to

Correct Answer
verified

The interest rate falls if

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

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct Answer
verified

Which of the following statements generates the greatest amount of disagreement among economists?

Correct Answer
verified

Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

Correct Answer
verified

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct Answer
verified

The theory of liquidity preference is most helpful in understanding

Correct Answer
verified

In the long run, fiscal policy influences

Correct Answer
verified

According to the interest-rate effect, an increase in the price level will

Correct Answer
verified

If the MPC = 0.75, then the government purchases multiplier is about

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct AnswerverifiedShow Answer

If people decide to hold less money, then

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in taxes shifts the aggregate curve to the .

Correct AnswerverifiedShow Answer

If taxes

Correct AnswerverifiedShow Answer

Paul Samuelson, a famous economist, said that

Correct AnswerverifiedShow Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct AnswerverifiedShow Answer

Permanent tax cuts shift the AD curve

Correct AnswerverifiedShow Answer

The lag problem associated with fiscal policy is due mostly to

Correct AnswerverifiedShow Answer

The interest rate falls if

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

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Correct AnswerverifiedShow Answer

Which of the following statements generates the greatest amount of disagreement among economists?

Correct AnswerverifiedShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

Correct AnswerverifiedShow Answer

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

In the long run, fiscal policy influences

Correct AnswerverifiedShow Answer

According to the interest-rate effect, an increase in the price level will

Correct AnswerverifiedShow Answer

If the MPC = 0.75, then the government purchases multiplier is about

Correct AnswerverifiedShow Answer

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