Question 1

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)   neither the level of output nor the level of prices.
B)   the level of output, but not in the level of prices.
C)   the level of prices, but not in the level of output.
D)   the level of output and in the level of prices.E) B) and D)
F) All of the above

Question 2

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Accepted Answer

A)   increases by 2 percentage points.
B)   increases, but by less than 2 percentage points.
C)   decreases, but by less than 2 percentage points.
D)   decreases by 2 percentage points.E) All of the above
F) A) and D)

Question 3

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)   shortage in the money market, so people will want to sell bonds.
B)   shortage in the money market, so people will want to buy bonds.
C)   surplus in the money market, so people will want to sell bonds.
D)   surplus in the money market, so people will want to buy bonds.E) None of the above
F) A) and D)

Question 4

Figure 34-6. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 34-6. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)   $15 billion.
B)   $40 billion.
C)   $35 billion.
D)   $95 billion.E) C) and D)
F) B) and D)

Question 5

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect, but not the crowding-out effect
C)   the crowding-out effect, but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) A) and B)
F) A) and C)

Question 6

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Accepted Answer

A)   increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices.
B)   increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices.
C)   decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices.
D)   decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices.E) None of the above
F) C) and D)

Question 7

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 8

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Accepted Answer

A)   By themselves, both the change in output and the change in the interest rate increase desired investment.
B)   By themselves, both the change in output and the change in the interest rate decrease desired investment.
C)   By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
D)   By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.E) C) and D)
F) All of the above

Question 9

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)   shifts rightward by $100 billion.
B)   shifts rightward by $51 billion.
C)   shifts rightward by $170 billion.
D)   shifts rightward by $72.8 billion.E) None of the above
F) A) and B)

Question 10

If the MPC = 4/5, then the government purchases multiplier is

Accepted Answer

A)   5/4.
B)   4/5.
C)   5.
D)   20.E) A) and B)
F) B) and D)

Question 11

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Accepted Answer

A)   relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B)   relatively important in the United States because consumption spending is a large part of GDP.
C)   relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D)   relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.E) B) and C)
F) A) and D)

Question 12

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 13

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one- third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)   by $90 billion
B)   by $60 billion
C)   by $20 billion
D)   by $30 billionE) None of the above
F) B) and D)

Question 14

If the inflation rate is zero, then

Accepted Answer

A)   both the nominal interest rate and the real interest rate can fall below zero.
B)   the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero.
C)   the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero.
D)   neither the nominal interest rate nor the real interest rate can fall below zero.E) C) and D)
F) None of the above

Question 15

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

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

Question 16

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Accepted Answer

A)   the multiplier is probably zero.
B)   the multiplier is probably equal to one.
C)   the multiplier is probably greater than one.
D)   the multiplier is probably less than one.E) None of the above
F) B) and C)

Question 17

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 D)
F) A) and B)

Question 18

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)   an increase in government expenditures
B)   an increase in net exports
C)   an increase in investment spending
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 19

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) None of the above

Question 20

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) A) and B)

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

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified

Assume the MPC is 0.72. The multiplier is

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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If the Federal Reserve increases the money supply, then initially there is a

Correct Answer
verified

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Correct Answer
verified

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Correct Answer
verified

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

If the MPC = 4/5, then the government purchases multiplier is

Correct Answer
verified

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
verified

The opportunity cost of holding money

Correct Answer
verified

If the inflation rate is zero, then

Correct Answer
verified

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Correct Answer
verified

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct Answer
verified

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Correct Answer
verified

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct Answer
verified

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Correct Answer
verified

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct Answer
verified

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

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.72. The multiplier is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially there is a

Correct AnswerverifiedShow Answer

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

If the MPC = 4/5, then the government purchases multiplier is

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

If the inflation rate is zero, then

Correct AnswerverifiedShow Answer

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Correct AnswerverifiedShow Answer

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Correct AnswerverifiedShow Answer

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct AnswerverifiedShow Answer

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Correct AnswerverifiedShow Answer

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

Correct Answer
verified

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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