Question 1

An decrease in taxes shifts aggregate demand

Accepted Answer

A) to the right. The larger the multiplier is, the farther it shifts. 
B) to the right. The larger the multiplier is, the less it shifts. 
C) to the left. The larger the multiplier is, the farther it shifts. 
D) to the left. The larger the multiplier is, the less it shifts. 
A) to the right. The larger the multiplier is, the farther it shifts. 
B) to the right. The larger the multiplier is, the less it shifts. 
C) to the left. The larger the multiplier is, the farther it shifts. 
D) to the left. The larger the multiplier is, the less it shifts.

Question 2

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓ 
A) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓

Question 3

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Accepted Answer

A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply. 
A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply.

Question 4

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 5

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 6

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Accepted Answer

A) right by $130 billion. 
B) right by $70 billion. 
C) right by $50 billion. 
D) right by $10 billion. 
A) right by $130 billion. 
B) right by $70 billion. 
C) right by $50 billion. 
D) right by $10 billion.

Question 7

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A) increase taxes or increase the money supply 
B) increase taxes or decrease the money supply 
C) decrease taxes or increase the money supply 
D) decrease taxes or decrease the money supply 
A) increase taxes or increase the money supply 
B) increase taxes or decrease the money supply 
C) decrease taxes or increase the money supply 
D) decrease taxes or decrease the money supply

Question 8

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A) "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent." 
B) "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount." 
C) "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent." 
D) "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent." 
A) "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent." 
B) "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount." 
C) "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent." 
D) "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent."

Question 9

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then

Accepted Answer

A) there will be an increase in the equilibrium quantity of goods and services demanded. 
B) there will be a decrease in the equilibrium interest rate. 
C) the aggregate-demand curve will shift to the right. 
D) fewer firms will choose to borrow to build new factories and buy new equipment. 
A) there will be an increase in the equilibrium quantity of goods and services demanded. 
B) there will be a decrease in the equilibrium interest rate. 
C) the aggregate-demand curve will shift to the right. 
D) fewer firms will choose to borrow to build new factories and buy new equipment.

Question 10

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) The price level rises. 
B) The price level falls. 
C) The money supply falls. 
D) None of the above is correct. 
A) The price level rises. 
B) The price level falls. 
C) The money supply falls. 
D) None of the above is correct.

Question 11

Figure 34-2. 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 34-2. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A) the nominal interest rate 
B) the quantity of money demanded 
C) investment 
D) the expected rate of inflation 
A) the nominal interest rate 
B) the quantity of money demanded 
C) investment 
D) the expected rate of inflation

Question 12

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 13

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. 
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.

Question 14

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 15

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A) rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B) rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C) leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D) leftward. In an attempt to stabilize the economy, the government could decrease expenditures. 
A) rightward. In an attempt to stabilize the economy, the government could increase expenditures. 
B) rightward. In an attempt to stabilize the economy, the government could decrease expenditures. 
C) leftward. In an attempt to stabilize the economy, the government could increase expenditures. 
D) leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Question 16

The theory of liquidity preference illustrates the principle that

Accepted Answer

A) monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B) monetary policy can be described either in terms of the exchange rate or the interest rate. 
C) monetary policy must be described in terms of the money supply. 
D) monetary policy must be described in terms of the interest rate. 
A) monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B) monetary policy can be described either in terms of the exchange rate or the interest rate. 
C) monetary policy must be described in terms of the money supply. 
D) monetary policy must be described in terms of the interest rate.

Question 17

Other things equal, in the short run a lower price level leads households to

Accepted Answer

A) increase consumption and firms to buy more capital goods. 
B) increase consumption and firms to buy fewer capital goods. 
C) decrease consumption and firms to buy more capital goods. 
D) decrease consumption and firms to buy fewer capital goods. 
A) increase consumption and firms to buy more capital goods. 
B) increase consumption and firms to buy fewer capital goods. 
C) decrease consumption and firms to buy more capital goods. 
D) decrease consumption and firms to buy fewer capital goods.

Question 18

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A) the MPC is large and if the tax cut is permanent. 
B) the MPC is large and if the tax cut is temporary. 
C) the MPC is small and if the tax cut is permanent. 
D) the MPC is small and if the tax cut is temporary. 
A) the MPC is large and if the tax cut is permanent. 
B) the MPC is large and if the tax cut is temporary. 
C) the MPC is small and if the tax cut is permanent. 
D) the MPC is small and if the tax cut is temporary.

Question 19

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A) increase if there were a surplus in the money market. 
B) increase if there were a shortage in the money market. 
C) decrease if there were a surplus in the money market. 
D) decrease if there were a shortage in the money market. 
A) increase if there were a surplus in the money market. 
B) increase if there were a shortage in the money market. 
C) decrease if there were a surplus in the money market. 
D) decrease if there were a shortage in the money market.

Question 20

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. 
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.

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

An decrease in taxes shifts aggregate demand

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

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 _____.

The theory of liquidity preference was developed by Irving Fisher.

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Which of the following shifts aggregate demand to the right?

What is the value of the multiplier if the marginal propensity to consume is 0.5?

If the Fed increases the money supply,

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

A reduction in U.S net exports would shift U.S. aggregate demand

The theory of liquidity preference illustrates the principle that

Other things equal, in the short run a lower price level leads households to

A tax cut shifts the aggregate demand curve the farthest if

The interest rate would fall and the quantity of money demanded would

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

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

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 _.