Question 1

If the interest rate increases

Accepted Answer

A)  or if the price level increases,then people will want to hold more money. 
B)  or if the price level increases,then people will want to hold less money. 
C)  or if the price level decreases,then people will want to hold more money. 
D)  or if the price level decreases,then people will want to hold less money. 
A)  or if the price level increases,then people will want to hold more money. 
B)  or if the price level increases,then people will want to hold less money. 
C)  or if the price level decreases,then people will want to hold more money. 
D)  or if the price level decreases,then people will want to hold less money.

Question 2

According to liquidity preference theory,the opportunity cost of holding money is

Accepted Answer

A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds. 
A)  the interest rate on bonds. 
B)  the inflation rate. 
C)  the cost of converting bonds to a medium of exchange. 
D)  the difference between the inflation rate and the interest rate on bonds.

Question 3

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A)  r = 0.03,P = 1.4 
B)  r = 0.03,P = 1.2 
C)  r = 0.04,P = 1.2 
D)  r = 0.06,P = 1.0 
A)  r = 0.03,P = 1.4 
B)  r = 0.03,P = 1.2 
C)  r = 0.04,P = 1.2 
D)  r = 0.06,P = 1.0

Question 4

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases. 
A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases.

Question 5

An increase in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply in either direction. 
A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply in either direction.

Question 6

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies,leading to unpredictable effects on income. 
A)  attempts to stabilize the economy do not constitute a proper role for government in a democratic society. 
B)  these policies affect the economy with a long lag. 
C)  these policies affect the economy too quickly and with too much impact. 
D)  history demonstrates that interest rates respond unpredictably to active policies,leading to unpredictable effects on income.

Question 7

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 8

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants. 
A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question 9

People hold money primarily because it

Accepted Answer

A)  has a guaranteed nominal return. 
B)  serves as a store of value. 
C)  can directly be used to buy goods and services. 
D)  functions as a unit of account. 
A)  has a guaranteed nominal return. 
B)  serves as a store of value. 
C)  can directly be used to buy goods and services. 
D)  functions as a unit of account.

Question 10

For the following questions,use the diagram below:
Figure 34-6.  
-Refer to Figure 34-6.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level. 
A)  an increase in government purchases. 
B)  a decrease in stock prices. 
C)  consumers and firms becoming more optimistic about the future. 
D)  an increase in the price level.

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.What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money 
A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money

Question 12

Changes in the interest rate bring the money market into equilibrium 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 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 $7,300.
-Refer to Scenario 34-1.For this economy,an initial increase of $500 in net exports translates into a

Accepted Answer

A)  $2,000 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $2,500 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $2,000 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $2,500 increase in aggregate demand in the absence of the crowding-out effect. 
A)  $2,000 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $2,500 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $2,000 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $2,500 increase in aggregate demand in the absence of the crowding-out effect.

Question 14

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 15

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. 
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.

Question 16

Other things the same,during recessions taxes tend to

Accepted Answer

A)  rise.The rise in taxes stimulates aggregate demand. 
B)  rise.The rise in taxes contracts aggregate demand. 
C)  fall.The fall in taxes stimulates aggregate demand. 
D)  fall.The fall in taxes contracts aggregate demand. 
A)  rise.The rise in taxes stimulates aggregate demand. 
B)  rise.The rise in taxes contracts aggregate demand. 
C)  fall.The fall in taxes stimulates aggregate demand. 
D)  fall.The fall in taxes contracts aggregate demand.

Question 17

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Accepted Answer

A)  increase taxes 
B)  increase the money supply 
C)  increase government expenditures 
D)  All of the above are correct. 
A)  increase taxes 
B)  increase the money supply 
C)  increase government expenditures 
D)  All of the above are correct.

Question 18

Tax cuts

Accepted Answer

A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right. 
A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right.

Question 19

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 raise taxes. 
B)  rightward.In an attempt to stabilize the economy,the government could cut taxes. 
C)  leftward.In an attempt to stabilize the economy,the government could raise taxes. 
D)  leftward.In an attempt to stabilize the economy,the government could cut taxes. 
A)  rightward.In an attempt to stabilize the economy,the government could raise taxes. 
B)  rightward.In an attempt to stabilize the economy,the government could cut taxes. 
C)  leftward.In an attempt to stabilize the economy,the government could raise taxes. 
D)  leftward.In an attempt to stabilize the economy,the government could cut taxes.

Question 20

A decrease in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply. 
A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply.

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

If the interest rate increases

According to liquidity preference theory,the opportunity cost of holding money is

In which of the following cases would the quantity of money demanded be largest?

The most important reason for the slope of the aggregate-demand curve is that as the price level

An increase in government spending initially and primarily shifts

The primary argument against active monetary and fiscal policy is that

A tax cut shifts the aggregate demand curve the farthest if

Which of the following illustrates how the investment accelerator works?

People hold money primarily because it

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Changes in the interest rate bring the money market into equilibrium according to

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

The interest rate falls if

Other things the same,during recessions taxes tend to

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Tax cuts

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

A decrease in government spending initially and primarily shifts

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

Application: 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 of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of