Question 1

If the interest rate is below the Fed's target, the Fed should

Accepted Answer

A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves. 
A)  buy bonds to increase bank reserves. 
B)  buy bonds to decrease bank reserves. 
C)  sell bonds to increase bank reserves. 
D)  sell bonds to decrease bank reserves.

Question 2

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 3

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 4

When the Fed sells 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 5

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 6

Monetary policy and fiscal policy influence

Accepted Answer

A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only. 
A)  output and prices in the short run and the long run. 
B)  output and prices in the short run only. 
C)  output in the short run and the long run. 
D)  output in the short run only.

Question 7

Which of the following statements is correct for the long run?

Accepted Answer

A)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
A)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. 
C)  Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

Question 8

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. For this economy, an initial increase of $200 in net exports translates into an)

Accepted Answer

A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect. 
A)  $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D)  $800 increase in aggregate demand in the absence of the crowding-out effect.

Question 9

When the interest rate decreases, the opportunity cost of holding money

Accepted Answer

A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded increases. 
D)  decreases, so the quantity of money demanded decreases. 
A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded increases. 
D)  decreases, so the quantity of money demanded decreases.

Question 10

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 11

People hold money primarily because it

Accepted Answer

A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account. 
A)  increases in value when there is inflation. 
B)  serves as a store of value. 
C)  serves as a medium of exchange. 
D)  functions as a unit of account.

Question 12

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 13

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve. 
A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve.

Question 14

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 15

Figure 34-7  
-Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)  an increase in government purchases. 
B)  a decrease in net exports. 
C)  households saving a smaller fraction of their income. 
D)  a decrease in the price level. 
A)  an increase in government purchases. 
B)  a decrease in net exports. 
C)  households saving a smaller fraction of their income. 
D)  a decrease in the price level.

Question 16

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C)  changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. 
A)  shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. 
B)  the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate. 
C)  changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. 
D)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.

Question 17

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason, in the case of the United States, for the downward slope of the aggregate- demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve. 
A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason, in the case of the United States, for the downward slope of the aggregate- demand curve. 
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.

Question 18

The wealth effect stems from the idea that a higher price level

Accepted Answer

A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets. 
A)  increases the real value of households' money holdings. 
B)  decreases the real value of households' money holdings. 
C)  increases the real value of the domestic currency in foreign-exchange markets. 
D)  decreases the real value of the domestic currency in foreign-exchange markets.

Question 19

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

Accepted Answer

A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion. 
A)  shifts rightward by $100 billion. 
B)  shifts rightward by $51 billion. 
C)  shifts rightward by $170 billion. 
D)  shifts rightward by $72.8 billion.

Question 20

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)  monetary policy. 
B)  crowding out. 
C)  the investment accelerator. 
D)  the multiplier. 
A)  monetary policy. 
B)  crowding out. 
C)  the investment accelerator. 
D)  the multiplier.

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

If the interest rate is below the Fed's target, the Fed should

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

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

An increase in the money supply shifts the aggregate-supply curve to the right.

Monetary policy and fiscal policy influence

Which of the following statements is correct for the long run?

When the interest rate decreases, the opportunity cost of holding money

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

People hold money primarily because it

The interest rate falls if

The theory of liquidity preference assumes that the nominal supply of money is determined by the

A tax cut shifts aggregate demand

Figure 34-7 -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

The interest-rate effect

The wealth effect stems from the idea that a higher price level

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

The idea that expansionary fiscal policy has a positive affect on investment is known as

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

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