Question 1

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Accepted Answer

liquidity

Question 2

If the Fed conducts open-market purchases, the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 3

An increase in taxes shifts the aggregate curve to the .

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 4

People choose to hold a larger quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall. 
A)  the interest rate rises, which causes the opportunity cost of holding money to rise. 
B)  the interest rate falls, which causes the opportunity cost of holding money to rise. 
C)  the interest rate rises, which causes the opportunity cost of holding money to fall. 
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.

Question 5

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion. 
A)  left by $180 billion. 
B)  left by $500 billion. 
C)  right by $180 billion. 
D)  right by $400 billion.

Question 6

If the interest rate decreases

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 7

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 8

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

Accepted Answer

A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate. 
A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate.

Question 9

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)  always decrease government tax revenue. 
B)  shifts the aggregate supply curve to the right. 
C)  provides no incentive for people to work more. 
D)  would decrease consumption. 
A)  always decrease government tax revenue. 
B)  shifts the aggregate supply curve to the right. 
C)  provides no incentive for people to work more. 
D)  would decrease consumption.

Question 10

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

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 11

Liquidity refers to

Accepted Answer

A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate. 
A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate.

Question 12

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Accepted Answer

A)  Keynesian in nature, and that his view is more valid for the long run than for the short run. 
B)  classical in nature, and that his view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run. 
D)  classical in nature, and that his view is more valid for the short run than for the long run. 
A)  Keynesian in nature, and that his view is more valid for the long run than for the short run. 
B)  classical in nature, and that his view is more valid for the long run than for the short run. 
C)  Keynesian in nature, and that his view is more valid for the short run than for the long run. 
D)  classical in nature, and that his view is more valid for the short run than for the long run.

Question 13

If the Fed conducts open-market sales, the money supply

Accepted Answer

A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left. 
A)  increases and aggregate demand shifts right. 
B)  increases and aggregate demand shifts left. 
C)  decreases and aggregate demand shifts right. 
D)  decreases and aggregate demand shifts left.

Question 14

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls. 
A)  Interest rates rise as the Fed reduces the quantity of money demanded. 
B)  Interest rates fall as the Fed reduces the supply of money. 
C)  People will want to hold less money as the cost of holding it falls. 
D)  People will want to hold more money as the cost of holding it falls.

Question 15

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 16

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m

Question 17

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level 
A)  the quantity of output 
B)  the amount of crowding out 
C)  the interest rate 
D)  the price level

Question 18

Paul Samuelson, a famous economist, said that

Accepted Answer

A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions." 
A)  "the bond market has predicted zero out of the past nine recessions." 
B)  "the stock market has predicted zero out of the past nine recessions." 
C)  "the bond market has predicted nine out of the past five recessions." 
D)  "the stock market has predicted nine out of the past five recessions."

Question 19

In the early 1960s, the Kennedy administration made considerable use of

Accepted Answer

A)  fiscal policy to stimulate the economy. 
B)  fiscal policy to slow down the economy. 
C)  monetary policy to stimulate the economy. 
D)  monetary policy to slow down the economy. 
A)  fiscal policy to stimulate the economy. 
B)  fiscal policy to slow down the economy. 
C)  monetary policy to stimulate the economy. 
D)  monetary policy to slow down the economy.

Question 20

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate

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

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

If the Fed conducts open-market purchases, the money supply

An increase in taxes shifts the aggregate curve to the .

People choose to hold a larger quantity of money if

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

If the interest rate decreases

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

Supply-side economists believe that a reduction in the tax rate

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Liquidity refers to

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

If the Fed conducts open-market sales, the money supply

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

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

What is the difference between monetary policy and fiscal policy?

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. What is measured along the vertical axis of the graph?

Paul Samuelson, a famous economist, said that

In the early 1960s, the Kennedy administration made considerable use of

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

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

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.