Question 1

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. 
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.

Question 2

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

Accepted Answer

A) buying government bonds, which decreases the supply of money. 
B) selling government bonds, which increases the supply of money. 
C) buying government bonds, which increases the supply of money. 
D) selling government bonds, which decreases the supply of money. 
A) buying government bonds, which decreases the supply of money. 
B) selling government bonds, which increases the supply of money. 
C) buying government bonds, which increases the supply of money. 
D) selling government bonds, which decreases the supply of money.

Question 3

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Accepted Answer

A) Dwight D. Eisenhower 
B) John F. Kennedy 
C) Ronald Reagan 
D) Bill Clinton 
A) Dwight D. Eisenhower 
B) John F. Kennedy 
C) Ronald Reagan 
D) Bill Clinton

Question 4

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

Accepted Answer

A) aggregate demand falls by 2 x $40 billion. 
B) aggregate demand falls by 11/2 x $40 billion. 
C) aggregate demand falls by 11/9 x $40 billion. 
D) aggregate demand falls by 9/11 x $40 billion. 
A) aggregate demand falls by 2 x $40 billion. 
B) aggregate demand falls by 11/2 x $40 billion. 
C) aggregate demand falls by 11/9 x $40 billion. 
D) aggregate demand falls by 9/11 x $40 billion.

Question 5

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 decrease in the equilibrium interest rate from r1 to r3?

Accepted Answer

A) a decrease in the price level 
B) a decrease in the number of firms building new factories and buying new equipment 
C) an increase in the price level 
D) an increase in the number of firms building new factories and buying new equipment 
A) a decrease in the price level 
B) a decrease in the number of firms building new factories and buying new equipment 
C) an increase in the price level 
D) an increase in the number of firms building new factories and buying new equipment

Question 6

Supply-side economists focus more than other economists on

Accepted Answer

A) how fiscal policy affects consumption. 
B) the multiplier effect of fiscal policy. 
C) how fiscal policy affects aggregate supply. 
D) the money supply. 
A) how fiscal policy affects consumption. 
B) the multiplier effect of fiscal policy. 
C) how fiscal policy affects aggregate supply. 
D) the money supply.

Question 7

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Accepted Answer

A) True 
 B)False

Question 8

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 9

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then

Accepted Answer

A) 1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B) 1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C) 1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D) 1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5. 
A) 1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 1.96. 
B) 1 + MPC + MPC 2 + MPC 3 = 1.844 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
C) 1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 3. 
D) 1 + MPC + MPC 2 + MPC 3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of 2.5.

Question 10

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A) When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. 
A) When interest rates fall, In-and-Out Convenience Stores decides to build some new stores. 
B) The exchange rate falls, so French restaurants in Paris buy more Kansas beef. 
C) Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D) With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.

Question 11

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Accepted Answer

A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates. 
A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates.

Question 13

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. 
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.

Question 14

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 15

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A) $216 billion. 
B) $150 billion. 
C) $600 billion. 
D) $480 billion. 
A) $216 billion. 
B) $150 billion. 
C) $600 billion. 
D) $480 billion.

Question 16

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause a(n) _____ in interest...

Question 17

The exchange-rate effect is based, in part, on the idea that

Accepted Answer

A) a decrease in the price level reduces the interest rate. 
B) an increase in the price level causes investors to move some of their funds overseas. 
C) an increase in the price level causes domestic goods to become less expensive relative to foreign goods. 
D) a decrease in the price level reduces spending on net exports. 
A) a decrease in the price level reduces the interest rate. 
B) an increase in the price level causes investors to move some of their funds overseas. 
C) an increase in the price level causes domestic goods to become less expensive relative to foreign goods. 
D) a decrease in the price level reduces spending on net exports.

Question 18

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. 
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.

Question 19

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

Accepted Answer

supply, pu

Question 20

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 level 
A) interest rate 
B) money supply 
C) quantity of output 
D) price level

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

If the inflation rate is zero, then

To stabilize interest rates, the Federal Reserve will respond to an increase in money demand by

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

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 decrease in the equilibrium interest rate from r1 to r3?

Supply-side economists focus more than other economists on

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Shifts in the aggregate-demand curve can cause fluctuations in

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Open-market purchases cause a(n) _____ in interest rates and a(n) _____ in real GDP in the short run.

The exchange-rate effect is based, in part, on the idea that

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

When the interest rate is above equilibrium, there is excess _____ of money. Households will _____ interest-earning assets, which _____ the interest rate.

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

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

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 decrease in the equilibrium interest rate from r₁ to r₃?

According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.

Open-market purchases cause a(n) _ in interest rates and a(n) _ in real GDP in the short run.

When the interest rate is above equilibrium, there is excess ___ of money. Households will _ interest-earning assets, which ___ the interest rate.