Question 1

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory. 
A)  the wealth effect. 
B)  the exchange-rate effect. 
C)  the interest-rate effect. 
D)  misperceptions theory.

Question 2

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 3

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m

Question 4

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

Accepted Answer

A)  r = 0.03, P = 1.2 
B)  r = 0.03, P = 1.3 
C)  r = 0.04, P = 1.2 
D)  r = 0.05, P = 0.9 
A)  r = 0.03, P = 1.2 
B)  r = 0.03, P = 1.3 
C)  r = 0.04, P = 1.2 
D)  r = 0.05, P = 0.9

Question 5

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy. 
A)  Increases in the money supply shift aggregate demand to the right. 
B)  In the long run, increases in the money supply increase prices, but not output. 
C)  Recessions are associated with decreases in consumption, investment, and employment. 
D)  Government should use fiscal policy to try to stabilize the economy.

Question 6

If the MPC = 4/5, then the government purchases multiplier is

Accepted Answer

A)  5/4. 
B)  4/5. 
C)  5. 
D)  20. 
A)  5/4. 
B)  4/5. 
C)  5. 
D)  20.

Question 7

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero. 
A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally. 
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt. 
C)  explicitly set its target rate of inflation at zero. 
D)  explicitly set its target rate of inflation well above zero.

Question 8

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 9

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)  proposals to change monetary policy must go through both the House and Senate before being sent to the president. 
B)  monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. 
C)  changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. 
D)  changes in interest rates primarily influence investment spending, and firms make investment plans far in advance. 
A)  proposals to change monetary policy must go through both the House and Senate before being sent to the president. 
B)  monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. 
C)  changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. 
D)  changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.

Question 10

The Employment Act of 1946

Accepted Answer

A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct 
A)  implies that the government should avoid being a cause of economic fluctuations. 
B)  implies that the government should respond to changes in the private economy to stabilize aggregate demand. 
C)  reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money. 
D)  All of the above are correct

Question 11

When the Fed buys government bonds, the reserves of the banking system

Accepted Answer

A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases. 
A)  increase, so the money supply increases. 
B)  increase, so the money supply decreases. 
C)  decrease, so the money supply increases. 
D)  decrease, so the money supply decreases.

Question 12

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Accepted Answer

Automatic

Question 13

The goal of monetary policy and fiscal policy is to

Accepted Answer

A)  offset the shifts in aggregate demand and thereby eliminate unemployment. 
B)  offset shifts in aggregate demand and thereby stabilize the economy. 
C)  enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D)  enhance the shifts in aggregate demand and thereby increase economic growth 
A)  offset the shifts in aggregate demand and thereby eliminate unemployment. 
B)  offset shifts in aggregate demand and thereby stabilize the economy. 
C)  enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D)  enhance the shifts in aggregate demand and thereby increase economic growth

Question 14

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 r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, 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 quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
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 quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 15

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

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

Question 16

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time. 
A)  was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive. 
B)  was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile. 
C)  came from economists who had studied Keynes's ideas when those ideas were only a few years old. 
D)  came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.

Question 17

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C)  $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D)  $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand. 
A)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B)  $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C)  $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D)  $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.

Question 18

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 19

A decrease in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so decreases investment spending decreases. 
C)  decreases the interest rate and so investment spending increases. 
D)  decreases the interest rate and so investment spending decreases. 
A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so decreases investment spending decreases. 
C)  decreases the interest rate and so investment spending increases. 
D)  decreases the interest rate and so investment spending decreases.

Question 20

An increase in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases. 
A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases.

The theory of liquidity preference is most helpful in understanding

A tax cut shifts aggregate demand

What is the difference between monetary policy and fiscal policy?

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

Which of the following statements generates the greatest amount of disagreement among economists?

If the MPC = 4/5, then the government purchases multiplier is

During the economic downturn of 2008-2009, the Federal Reserve

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Monetary policy affects the economy with a long lag, in part because

The Employment Act of 1946

When the Fed buys government bonds, the reserves of the banking system

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

The goal of monetary policy and fiscal policy is to

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

How does a reduction in the money supply by the Fed make owning stocks less attractive?

A decrease in government spending

An increase in government spending

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 theory of liquidity preference is most helpful in understanding

A tax cut shifts aggregate demand

What is the difference between monetary policy and fiscal policy?

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

Which of the following statements generates the greatest amount of disagreement among economists?

If the MPC = 4/5, then the government purchases multiplier is

During the economic downturn of 2008-2009, the Federal Reserve

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Monetary policy affects the economy with a long lag, in part because

The Employment Act of 1946

When the Fed buys government bonds, the reserves of the banking system

are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

The goal of monetary policy and fiscal policy is to

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

How does a reduction in the money supply by the Fed make owning stocks less attractive?

A decrease in government spending

An increase in government spending

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