Question 1

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Accepted Answer

increases,

Question 2

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 3

As the interest rate falls,

Accepted Answer

A) the quantity of money demanded falls, which would reduce a shortage. 
B) the quantity of money demanded falls, which would reduce a surplus. 
C) the quantity of money demanded rises, which would reduce a shortage. 
D) the quantity of money demanded rises, which would reduce a surplus. 
A) the quantity of money demanded falls, which would reduce a shortage. 
B) the quantity of money demanded falls, which would reduce a surplus. 
C) the quantity of money demanded rises, which would reduce a shortage. 
D) the quantity of money demanded rises, which would reduce a surplus.

Question 4

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A) The government cuts taxes, resulting in an increase in people's incomes. 
B) The government reduces government spending, resulting in a decrease in people's incomes. 
C) The Federal Reserve increases the supply of money, which decreases the interest rate. 
D) All of the above are correct. 
A) The government cuts taxes, resulting in an increase in people's incomes. 
B) The government reduces government spending, resulting in a decrease in people's incomes. 
C) The Federal Reserve increases the supply of money, which decreases the interest rate. 
D) All of the above are correct.

Question 5

The interest-rate effect

Accepted Answer

A) depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B) depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C) is responsible for the downward slope of the money-demand curve. 
D) is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. 
A) depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B) depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C) is responsible for the downward slope of the money-demand curve. 
D) is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

Question 6

During recessions, taxes tend to

Accepted Answer

A) rise and thereby increase aggregate demand. 
B) rise and thereby decrease aggregate demand. 
C) fall and thereby increase aggregate demand. 
D) fall and thereby decrease aggregate demand. 
A) rise and thereby increase aggregate demand. 
B) rise and thereby decrease aggregate demand. 
C) fall and thereby increase aggregate demand. 
D) fall and thereby decrease aggregate demand.

Question 7

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply. 
A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply.

Question 8

The multiplier for changes in government spending is calculated as

Accepted Answer

A) 1/(1+MP
C) . 
B) (1 - MP
C) /MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) . 
A) 1/(1+MP
C) . 
B) (1 - MP
C) /MPC. 
C) 1/MPC. 
D) 1/(1 - MP
C) .

Question 9

If the MPC is 0, then the multiplier is

Accepted Answer

A) 0. 
B) 1. 
C) infinite. 
D) None of the above is correct. 
A) 0. 
B) 1. 
C) infinite. 
D) None of the above is correct.

Question 10

If the multiplier is 6, then the MPC is

Accepted Answer

A) 0.16. 
B) 0.83. 
C) 0.71. 
D) 0.86. 
A) 0.16. 
B) 0.83. 
C) 0.71. 
D) 0.86.

Question 11

A tax cut shifts aggregate demand

Accepted Answer

A) by more than the amount of the tax cut. 
B) by the same amount as the tax cut. 
C) by less than the tax cut. 
D) None of the above is necessarily correct. 
A) by more than the amount of the tax cut. 
B) by the same amount as the tax cut. 
C) by less than the tax cut. 
D) None of the above is necessarily correct.

Question 12

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. 
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.

Question 13

In recent years, the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A) bank reserves. 
B) the monetary growth rate. 
C) the exchange rate. 
D) the federal funds rate. 
A) bank reserves. 
B) the monetary growth rate. 
C) the exchange rate. 
D) the federal funds rate.

Question 14

Figure 34-11  
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

Accepted Answer

government

Question 15

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 marginal propensity to consume for this economy is

Accepted Answer

A) 0.64. 
B) 0.83. 
C) 0.56. 
D) 0.840. 
A) 0.64. 
B) 0.83. 
C) 0.56. 
D) 0.840.

Question 16

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A) both liquidity preference theory and classical theory. 
B) neither liquidity preference theory nor classical theory. 
C) liquidity preference theory, but not classical theory. 
D) classical theory, but not liquidity preference theory. 
A) both liquidity preference theory and classical theory. 
B) neither liquidity preference theory nor classical theory. 
C) liquidity preference theory, but not classical theory. 
D) classical theory, but not liquidity preference theory.

Question 17

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A) people want to hold more money. This response is shown by moving to the right along the money demand curve. 
B) people want to hold more money. This response is shown by shifting the money demand curve right. 
C) people want to hold less money. This response is shown by moving to the left along the money demand curve. 
D) people want to hold less money. This response is shown by shifting the money demand curve left. 
A) people want to hold more money. This response is shown by moving to the right along the money demand curve. 
B) people want to hold more money. This response is shown by shifting the money demand curve right. 
C) people want to hold less money. This response is shown by moving to the left along the money demand curve. 
D) people want to hold less money. This response is shown by shifting the money demand curve left.

Question 18

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 19

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Accepted Answer

A) As the money supply increases, the interest rate falls, so spending rises. 
B) As the money supply increases, the interest rate rises, so spending falls. 
C) As the price level increases, the interest rate falls, so spending rises. 
D) As the price level increases, the interest rate rises, so spending falls. 
A) As the money supply increases, the interest rate falls, so spending rises. 
B) As the money supply increases, the interest rate rises, so spending falls. 
C) As the price level increases, the interest rate falls, so spending rises. 
D) As the price level increases, the interest rate rises, so spending falls.

Question 20

The Employment Act of 1946 states that

Accepted Answer

A) the Fed should use monetary policy only to control the rate of inflation. 
B) the government should promote full employment and production. 
C) the government should periodically increase the minimum wage and unemployment insurance benefits. 
D) All of the above are correct. 
A) the Fed should use monetary policy only to control the rate of inflation. 
B) the government should promote full employment and production. 
C) the government should periodically increase the minimum wage and unemployment insurance benefits. 
D) All of the above are correct.

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

As the interest rate falls,

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

The interest-rate effect

During recessions, taxes tend to

If the interest rate is below the Fed's target, the Fed would

The multiplier for changes in government spending is calculated as

If the MPC is 0, then the multiplier is

If the multiplier is 6, then the MPC is

A tax cut shifts aggregate demand

When the Fed decreases the money supply, we expect

In recent years, the Federal Reserve has conducted policy by setting a target for

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

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 marginal propensity to consume for this economy is

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

According to the theory of liquidity preference, if the interest rate rises

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

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

The Employment Act of 1946 states that

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

When the Federal Reserve conducts an open-market purchase, the money supply _ and aggregate demand _.

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _ and/or increase _.