Question 1

Fiscal 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 2

Most recessions and depressions

Accepted Answer

A)  are accurately forecasted. 
B)  usually occur with ample advance warning. 
C)  cause falling unemployment. 
D)  occur with little advance warning. 
A)  are accurately forecasted. 
B)  usually occur with ample advance warning. 
C)  cause falling unemployment. 
D)  occur with little advance warning.

Question 3

An increase in the interest rate could have been caused by

Accepted Answer

A)  a fall in the price level causing the money-demand curve to shift leftward. 
B)  a fall in the price level causing the money-demand curve to shift rightward. 
C)  a rise in the price level causing the money-demand curve to shift leftward. 
D)  a rise in the price level causing the money-demand curve to shift rightward. 
A)  a fall in the price level causing the money-demand curve to shift leftward. 
B)  a fall in the price level causing the money-demand curve to shift rightward. 
C)  a rise in the price level causing the money-demand curve to shift leftward. 
D)  a rise in the price level causing the money-demand curve to shift rightward.

Question 4

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 5

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 6

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 7

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 8

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 9

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.

Question 10

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Accepted Answer

A)  increase the money supply by buying bonds. 
B)  increase the money supply by selling bonds. 
C)  decrease the money supply by buying bonds 
D)  increase the money supply by selling bonds 
A)  increase the money supply by buying bonds. 
B)  increase the money supply by selling bonds. 
C)  decrease the money supply by buying bonds 
D)  increase the money supply by selling bonds

Question 11

Keynes argued that aggregate demand is

Accepted Answer

A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations. 
A)  stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand. 
B)  stable, because changes in consumption are mostly offset by changes in investment and vice versa. 
C)  unstable, because waves of pessimism and optimism create fluctuations in aggregate demand. 
D)  unstable, because of long and variable policy lags that worsen economic fluctuations.

Question 12

Figure 34-1  
-Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Accepted Answer

A)  demand for money equal to the distance between points a and b. 
B)  demand for money equal to the distance between points b and c. 
C)  supply of money equal to the distance between points a and b. 
D)  supply of money equal to the distance between points b and c. 
A)  demand for money equal to the distance between points a and b. 
B)  demand for money equal to the distance between points b and c. 
C)  supply of money equal to the distance between points a and b. 
D)  supply of money equal to the distance between points b and c.

Question 13

Figure 34-7  
-Refer to Figure 34-7. Which of the following is correct?

Accepted Answer

A)  A wave of optimism could move the economy from point a to pointB 
B)  If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct. 
A)  A wave of optimism could move the economy from point a to pointB 
B)  If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct.

Question 14

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Accepted Answer

A)  purchasing government bonds. This action will reduce investment and shift aggregate demand to the right. 
B)  purchasing government bonds. This action will increase investment and shift aggregate demand to the right. 
C)  selling government bonds. This action will reduce investment and shift aggregate demand to the left. 
D)  selling government bonds. This action will increase investment and shift aggregate demand to the left. 
A)  purchasing government bonds. This action will reduce investment and shift aggregate demand to the right. 
B)  purchasing government bonds. This action will increase investment and shift aggregate demand to the right. 
C)  selling government bonds. This action will reduce investment and shift aggregate demand to the left. 
D)  selling government bonds. This action will increase investment and shift aggregate demand to the left.

Question 15

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 does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output 
A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output

Question 16

Figure 34-10  
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

The answer of Figure 34-10  
-Refer to Figure 34-10....

Question 17

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S. citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 18

Some economists argue that

Accepted Answer

A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct. 
A)  monetary policy should actively be used to stabilize the economy. 
B)  fiscal policy should actively be used to stabilize the economy. 
C)  fiscal policy can be used to shift the AD curve. 
D)  All of the above are correct.

Question 19

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 20

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.

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy is determined by

Most recessions and depressions

An increase in the interest rate could have been caused by

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

Monetary policy is determined by

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

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

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?

Which of the following properly describes the interest-rate effect?

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

Keynes argued that aggregate demand is

Figure 34-1 -Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess

Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Some economists argue that

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

If the inflation rate is zero, then

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

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

Six Debates Over Macroeconomic Policy

Filters

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

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.