Question 1

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct. 
A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of implementing fiscal policy. 
C)  the time it takes for changes in government spending or taxes to affect the interest rate. 
D)  All of the above are correct.

Question 2

If the stock market booms, then

Accepted Answer

A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply. 
A)  aggregate demand increases, which the Fed could offset by purchasing bonds. 
B)  aggregate supply increases, which the Fed could offset by selling bonds. 
C)  aggregate demand increases, which the Fed could offset by selling bonds. 
D)  aggregate supply increases, which the Fed could offset by purchasing the money supply.

Question 3

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Accepted Answer

A)  $381.67. 
B)  $378. 
C)  $383. 
D)  $383.33. 
A)  $381.67. 
B)  $378. 
C)  $383. 
D)  $383.33.

Question 4

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 5

Figure 34-9  
-Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

Accepted Answer

A)  requires the central bank to purchase government bonds, which will increase the money supply. 
B)  is a reduction in government purchases. 
C)  is a reduction in taxes. 
D)  requires the central bank to sell government bonds, which will reduce the money supply. 
A)  requires the central bank to purchase government bonds, which will increase the money supply. 
B)  is a reduction in government purchases. 
C)  is a reduction in taxes. 
D)  requires the central bank to sell government bonds, which will reduce the money supply.

Question 6

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 7

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system

Question 8

Figure 34-1  
-Refer to Figure 34-1. If the current interest rate is 2 percent,

Accepted Answer

A)  there is an excess supply of money. 
B)  people will sell more bonds, which drives interest rates up. 
C)  as the money market moves to equilibrium, people will buy more goods. 
D)  All of the above are correct. 
A)  there is an excess supply of money. 
B)  people will sell more bonds, which drives interest rates up. 
C)  as the money market moves to equilibrium, people will buy more goods. 
D)  All of the above are correct.

Question 9

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. 
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.

Question 10

People might withdraw money from interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall, if there is a surplus in the money market. 
B)  making the interest rate rise, if there is a surplus in the money market. 
C)  making the interest rate fall, if there is a shortage in the money market. 
D)  making the interest rate rise, if there is a shortage in the money market. 
A)  making the interest rate fall, if there is a surplus in the money market. 
B)  making the interest rate rise, if there is a surplus in the money market. 
C)  making the interest rate fall, if there is a shortage in the money market. 
D)  making the interest rate rise, if there is a shortage in the money market.

Question 11

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases. 
A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases.

Question 12

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 13

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 14

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. 
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.

Question 15

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200. 
A)  6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B)  5, so a $200 increase in government spending increases aggregate supply by $1000. 
C)  6, so a $200 increase in government spending increases aggregate demand by $1200. 
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200.

Question 16

Opponents of active stabilization policy

Accepted Answer

A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct. 
A)  advocate a monetary policy designed to offset changes in the unemployment rate. 
B)  argue that fiscal policy is unable to change aggregate demand or aggregate supply. 
C)  believe that the political process creates lags in the implementation of fiscal policy. 
D)  None of the above is correct.

Question 17

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

Accepted Answer

A)  By themselves, both the change in output and the change in the interest rate increase desired investment. 
B)  By themselves, both the change in output and the change in the interest rate decrease desired investment. 
C)  By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D)  By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending. 
A)  By themselves, both the change in output and the change in the interest rate increase desired investment. 
B)  By themselves, both the change in output and the change in the interest rate decrease desired investment. 
C)  By itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending. 
D)  By itself, the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

Question 18

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)  increase money demand and interest rates. Investment declines. 
B)  increase money demand and interest rates. Investment increases. 
C)  increase money demand, reduce interest rates, and investment increases. 
D)  decrease money demand and interest rates. Investment declines. 
A)  increase money demand and interest rates. Investment declines. 
B)  increase money demand and interest rates. Investment increases. 
C)  increase money demand, reduce interest rates, and investment increases. 
D)  decrease money demand and interest rates. Investment declines.

Question 19

Monetary policy is determined by

Accepted Answer

A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply. 
A)  the president and Congress and involves changing government spending and taxation. 
B)  the president and Congress and involves changing the money supply. 
C)  the Federal Reserve and involves changing government spending and taxation. 
D)  the Federal Reserve and involves changing the money supply.

Question 20

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills. 
A)  banks charge each other for short-term loans. 
B)  the Fed charges depository institutions for short-term loans. 
C)  the Fed pays on deposits. 
D)  interest rate on 3 month Treasury bills.

The lag problem associated with fiscal policy is due mostly to

If the stock market booms, then

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

If the MPC is 0, then the multiplier is

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

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

Which of the following is not an automatic stabilizer?

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

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

People might withdraw money from interest-bearing accounts,

The multiplier effect is exemplified by the multiplied impact on

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.

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

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

If the MPC is 5/6 then the multiplier is

Opponents of active stabilization policy

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

According to the interest-rate effect, an increase in the price level will

Monetary policy is determined by

The Federal Funds rate is the interest rate

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic 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

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Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The lag problem associated with fiscal policy is due mostly to

If the stock market booms, then

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

If the MPC is 0, then the multiplier is

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

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

Which of the following is not an automatic stabilizer?

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

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

People might withdraw money from interest-bearing accounts,

The multiplier effect is exemplified by the multiplied impact on

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.

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

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

If the MPC is 5/6 then the multiplier is

Opponents of active stabilization policy

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct?

According to the interest-rate effect, an increase in the price level will

Monetary policy is determined by

The Federal Funds rate is the interest rate

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic 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