Question 1

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

Question 2

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) C) and D)
F) None of the above

Question 3

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   a decrease in the money supply
B)   an increase in tax rates
C)   an increase in government purchases
D)   an increase in interest rates.E) C) and D)
F) B) and C)

Question 4

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Accepted Answer

A)   interest rate
B)   money supply
C)   quantity of output
D)   price levelE) A) and B)
F) A) and C)

Question 6

Which of the following events would shift money demand to the right?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) All of the above
F) A) and C)

Question 7

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)   Keynesian in nature, and that his view is more valid for the long run than for the short run.
B)   classical in nature, and that his view is more valid for the long run than for the short run.
C)   Keynesian in nature, and that his view is more valid for the short run than for the long run.
D)   classical in nature, and that his view is more valid for the short run than for the long run.E) A) and B)
F) A) and D)

Question 8

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

Accepted Answer

A)   in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.
B)   people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks will respond by lowering the interest rates they offer.
D)   there is a shortage of money.E) None of the above
F) A) and C)

Question 9

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Accepted Answer

A)   Your aunt puts more money in her savings account.
B)   Foreign citizens decide to buy fewer U.S. bonds.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 10

Government purchases are said to have a

Accepted Answer

A)   multiplier effect on aggregate supply.
B)   multiplier effect on aggregate demand.
C)   liquidity-enhancing effect on aggregate supply.
D)   liquidity-enhancing effect on aggregate demand.E) A) and B)
F) A) and C)

Question 11

Which of the following is not an automatic stabilizer?

Accepted Answer

A)   the minimum wage
B)   the unemployment compensation system
C)   the federal income tax
D)   the welfare systemE) A) and D)
F) C) and D)

Question 12

Figure 34-14 
-Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-14 
-Refer to Figure 34-14. Initial...

Question 13

According to the liquidity preference theory, an increase in the overall price level of 10 percent

Accepted Answer

A)   increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
B)   decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded.
C)   increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.
D)   decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.E) None of the above
F) A) and C)

Question 14

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

Question 15

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 16

An increase in government purchases is likely to

Accepted Answer

A)   decrease interest rates.
B)   reduce money demand.
C)   crowd out investment spending by business firms.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 17

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Accepted Answer

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

Question 18

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   1/MPC.
B)   1/1 - MP
C)  .
C)   MPC/1 - MP
C)  .
D)   1 - MP
C)  /MPC.E) B) and D)
F) All of the above

Question 19

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 20

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

A)   the crowding-out effect
B)   the multiplier effect
C)   the exchange-rate effect
D)   the interest-rate effectE) All of the above
F) None of the above

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

An increase in government purchases is likely to

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The multiplier for changes in government spending is calculated as

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Which of the following is not an automatic stabilizer?

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Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

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

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Government purchases are said to have a

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Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

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Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

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According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

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Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

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

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An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

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Which of the following events would shift money demand to the right?

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Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

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The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

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Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

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Other things equal, the higher the price level, the higher is the real wealth of households.

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Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

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According to the liquidity preference theory, an increase in the overall price level of 10 percent

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Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .

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Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

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