Question 1

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

Question 2

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   All of the above are correct.E) All of the above
F) A) and C)

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

Question 4

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the cost of borrowing
C)   an increase in the price level
D)   an increase in the cost of borrowingE) B) and D)
F) A) and C)

Question 5

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)   sales of government bonds, which reduces interest rates and causes people to hold less money.
B)   purchases of government bonds, which reduces interest rates and causes people to hold less money.
C)   purchases of government bonds, which reduces interest rates and causes people to hold more money.
D)   sales of government bonds, which reduces interest rates and causes people to hold more money.E) A) and D)
F) C) and D)

Question 8

An example of an automatic stabilizer is

Accepted Answer

A)   unemployment benefits.
B)   a lowering of interest rates by the Fed.
C)   a decrease in money demand.
D)   a decrease in tax rates in response to a recession.E) A) and B)
F) B) and D)

Question 9

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

Question 10

As real GDP falls,

Accepted Answer

A)   money demand rises, so the interest rate rises.
B)   money demand rises, so the interest rate falls
C)   money demand falls, so the interest rate rises.
D)   money demand falls, so the interest rate falls.E) A) and D)
F) C) and D)

Question 11

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 12

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) B) and C)

Question 13

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Accepted Answer

A)   0.650.
B)   0.750.
C)   0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)   0.800.E) A) and B)
F) A) and C)

Question 14

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)   an "easy" monetary policy.
B)   a "passive" monetary policy.
C)   a "practical" monetary policy.
D)   an "active" monetary policy.E) C) and D)
F) None of the above

Question 15

In the long run, the level of output

Accepted Answer

A)   depends on the money supply.
B)   depends on the price level.
C)   is determined by supply-side factors.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 16

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need ...

Question 17

For the U.S. economy, money holdings are a

Accepted Answer

A)   large part of household wealth, and so the interest-rate effect is large.
B)   large part of household wealth, and so the wealth effect is large.
C)   small part of household wealth, and so the interest-rate effect is small.
D)   small part of household wealth, and so the wealth effect is small.E) B) and C)
F) None of the above

Question 18

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)   left by $60 billion.
B)   left by $36 billion.
C)   right by $68 billion.
D)   right by $36 billion.E) B) and C)
F) None of the above

Question 19

Figure 34-3 
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) A) and B)
F) A) and C)

Question 20

Monetary policy

Accepted Answer

A)   must be described in terms of interest-rate targets.
B)   must be described in terms of money-supply targets.
C)   can be described either in terms of the money supply or in terms of the interest rate.
D)   cannot be accurately described in terms of the interest rate or in terms of the money supply.E) A) and B)
F) A) and C)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

The ease with which an asset can be converted into the medium of exchange is known as _____.

Correct Answer
verified

The interest rate falls if

Correct Answer
verified

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct Answer
verified
When the price level falls, people need ...
View Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct Answer
verified

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Correct Answer
verified

The opportunity cost of holding money

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

Which of the following illustrates how the investment accelerator works?

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct Answer
verified

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct Answer
verified

A policy that results in slow and steady growth of the money supply is an example of

Correct Answer
verified

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
verified

As real GDP falls,

Correct Answer
verified

In the long run, the level of output

Correct Answer
verified

For the U.S. economy, money holdings are a

Correct Answer
verified

An example of an automatic stabilizer is

Correct Answer
verified

Correct Answer
verified

Monetary policy

Correct Answer
verified

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

The ease with which an asset can be converted into the medium of exchange is known as _____.

Correct AnswerverifiedShow Answer

The interest rate falls if

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls, people need ...View AnswerShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

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

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedShow Answer

As real GDP falls,

Correct AnswerverifiedShow Answer

In the long run, the level of output

Correct AnswerverifiedShow Answer

For the U.S. economy, money holdings are a

Correct AnswerverifiedShow Answer

An example of an automatic stabilizer is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

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verified

Correct Answer
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Correct Answer
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verified
When the price level falls, people need ...
View Answer

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