Question 1

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)   multiplier effect.
B)   crowding-out effect.
C)   accelerator effect.
D)   Ricardian equivalence effect.E) C) and D)
F) B) and D)

Question 2

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. The multiplier for this economy is

Accepted Answer

A)   1.31.
B)   6.25.
C)   2.78.
D)   2.27.E) B) and C)
F) A) and D)

Question 3

Assume the following. • The MPC has a value of 0.8.
• The relationship between the interest rate, r, and investment, I, is given by the equation,
I = 20,000 - br,
Where b is a positive constant.
• Government purchases, G, are increased by $1,000.
In which of the following cases would there be no crowding out?

Accepted Answer

A)   b = 0
B)   b = 0.2
C)   b = 0.8
D)   b = 1E) A) and C)
F) A) and D)

Question 4

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

Accepted Answer

A)   rises and the aggregate quantity of goods demanded rises.
B)   rises and the aggregate quantity of goods demanded falls.
C)   falls and the aggregate quantity of goods demanded rises.
D)   falls and the aggregate quantity of goods demanded falls.E) A) and D)
F) A) and C)

Question 5

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)   Congress passed a law requiring them to do so.
B)   the President requested them to do so.
C)   the money supply is hard to measure with sufficient precision.
D)   changes in the interest rate change aggregate demand, but changes in the money supply do not.E) A) and D)
F) None of the above

Question 6

If the stock market booms, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by purchasing bonds.
B)   aggregate supply increases, which the Fed could offset by selling bonds.
C)   aggregate demand increases, which the Fed could offset by selling bonds.
D)   aggregate supply increases, which the Fed could offset by purchasing the money supply.E) B) and D)
F) B) and C)

Question 7

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

Accepted Answer

As consumers become pessimistic about th...

Question 8

If the Fed increases the money supply,

Accepted Answer

A)   the interest rate increases, which tends to raise stock prices.
B)   the interest rate increases, which tends to reduce stock prices.
C)   the interest rate decreases, which tends to raise stock prices.
D)   the interest rate decreases, which tends to reduce stock prices.E) B) and C)
F) C) and D)

Question 9

Which of the following sequences best represents the crowding-out effect?

Accepted Answer

A)   government purchases ↑ ⇒ GDP ↑ ⇒ supply of money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
B)   government purchases ↓ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓
C)   government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
D)   taxes ↑ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓E) A) and D)
F) A) and C)

Question 10

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

Question 11

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

Question 12

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)   monetary policy.
B)   crowding out.
C)   the investment accelerator.
D)   the multiplier.E) A) and C)
F) B) and C)

Question 13

Which particular interest rates)  do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)   only the nominal interest rate
B)   both the nominal interest rate and the real interest rate
C)   only the interest rate on long-term bonds
D)   only the interest rate on short-term government bondsE) B) and C)
F) A) and B)

Question 14

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)   An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels.
B)   An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels.
C)   An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises.
D)   An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels.E) B) and D)
F) A) and D)

Question 15

If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Accepted Answer

A)   interest rates and investment spending
B)   interest rates, but not investment spending
C)   investment spending, but not interest rates
D)   neither interest rates nor investment spendingE) A) and B)
F) C) and D)

Question 16

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 17

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) A) and C)
F) B) and C)

Question 18

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) All of the above
F) A) and B)

Question 19

Suppose investment spending falls. To offset the 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 decline in investment spending.
B)   increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
C)   decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending.
D)   decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.E) B) and D)
F) B) and C)

Question 20

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

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

If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Correct Answer
verified

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. The multiplier for this economy is

Correct Answer
verified

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Correct Answer
verified

If the stock market booms, then

Correct Answer
verified

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct Answer
verified

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct Answer
verified

During recessions, unemployment insurance payments tend to rise.

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 president and Congress have to do to keep output stable?

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

Correct Answer
verified

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Correct Answer
verified

Which of the following sequences best represents the crowding-out effect?

Correct Answer
verified

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct Answer
verified

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct Answer
verified

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

In the short run,

Correct Answer
verified

When the Fed decreases the money supply, we expect

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

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

If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. The multiplier for this economy is

Correct AnswerverifiedShow Answer

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

If the stock market booms, then

Correct AnswerverifiedShow Answer

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Correct AnswerverifiedShow Answer

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

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 president and Congress have to do to keep output stable?

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

Correct AnswerverifiedShow Answer

Which particular interest rates) do we attempt to explain using the theory of liquidity preference?

Correct AnswerverifiedShow Answer

Which of the following sequences best represents the crowding-out effect?

Correct AnswerverifiedShow Answer

The idea that expansionary fiscal policy has a positive affect on investment is known as

Correct AnswerverifiedShow Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

When the Fed decreases the money supply, we expect

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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