Question 1

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/1+MP
C) . 
B)  1 - MP
C) /MPC. 
C)  1/MPC. 
D)  1/1 - MP
C) . 
A)  1/1+MP
C) . 
B)  1 - MP
C) /MPC. 
C)  1/MPC. 
D)  1/1 - MP
C) .

Question 2

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)  increase the money supply, which will reduce interest rates. 
B)  decrease the money supply, which will reduce interest rates. 
C)  increase the money supply, which will increase interest rates. 
D)  decrease the money supply, which will increase interest rates. 
A)  increase the money supply, which will reduce interest rates. 
B)  decrease the money supply, which will reduce interest rates. 
C)  increase the money supply, which will increase interest rates. 
D)  decrease the money supply, which will increase interest rates.

Question 3

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

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 4

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 5

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 6

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Accepted Answer

A)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
B)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. 
C)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
D)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand. 
A)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
B)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. 
C)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. 
D)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.

Question 7

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

A)  a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero. 
B)  a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero. 
C)  a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D)  while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world. 
A)  a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero. 
B)  a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero. 
C)  a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D)  while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.

Question 8

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. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P = P2,

Accepted Answer

A)  investment is lower than it is when P = P1. 
B)  nominal output is higher than it is when P = P1. 
C)  the expected rate of inflation is higher than it is when P = P1. 
D)  the velocity of money is higher than it is when P = P1. 
A)  investment is lower than it is when P = P1. 
B)  nominal output is higher than it is when P = P1. 
C)  the expected rate of inflation is higher than it is when P = P1. 
D)  the velocity of money is higher than it is when P = P1.

Question 9

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 10

The multiplier is computed as MPC / 1 - MPC).

Accepted Answer

A) True 
 B)False

Question 11

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 12

Figure 34-3  
-Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Accepted Answer

A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4 
A)  1, 2, 3, 4 
B)  1, 4, 3, 2 
C)  3, 4, 2, 1 
D)  3, 2, 1, 4

Question 13

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply 
A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply

Question 14

Figure 34-1  
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. 
B)  If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

Question 15

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary,

Question 16

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.

Question 17

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run. 
A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run.

Question 18

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 19

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households, the...

Question 20

An increase in government spending shifts aggregate demand

Accepted Answer

A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts. 
A)  to the right. The larger the multiplier is, the farther it shifts. 
B)  to the right. The larger the multiplier is, the less it shifts. 
C)  to the left. The larger the multiplier is, the farther it shifts. 
D)  to the left. The larger the multiplier is, the less it shifts.

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

The multiplier for changes in government spending is calculated as

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

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.

An essential piece of the liquidity preference theory is the demand for money.

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Economists who are skeptical about the relevance of "liquidity traps" argue that

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

The multiplier is computed as MPC / 1 - MPC).

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 r3. Which of the following events would cause the equilibrium interest rate to decrease?

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Which of the following shifts aggregate demand to the left?

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

An increase in government spending

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

The theory of liquidity preference is most helpful in understanding

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

An increase in government spending shifts aggregate demand

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 Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

To offset increased pessimism by households, the government may _ government spending and/or _ taxes.