Question 1

In the long run, the level of output

Accepted Answer

A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct. 
A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct.

Question 2

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply. 
A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.

Question 3

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct. 
A)  $1480 
B)  $480 
C)  $160 
D)  None of the above is correct.

Question 4

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. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650. 
B)  0.750. 
C)  0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D)  0.800. 
A)  0.650. 
B)  0.750. 
C)  0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D)  0.800.

Question 5

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 6

Figure 34-3  
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)  consumption 
B)  investment 
C)  net exports 
D)  government spending 
A)  consumption 
B)  investment 
C)  net exports 
D)  government spending

Question 7

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)  left by $60 billion. 
B)  left by $36 billion. 
C)  right by $68 billion. 
D)  right by $36 billion. 
A)  left by $60 billion. 
B)  left by $36 billion. 
C)  right by $68 billion. 
D)  right by $36 billion.

Question 8

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co. decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co. decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co. rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co. decides to modernize its motels.

Question 9

Figure 34-4. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing 
A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing

Question 10

The opportunity cost of holding money

Accepted Answer

A)  decreases when the interest rate decreases, so people desire to hold more of it. 
B)  decreases when the interest rate decreases, so people desire to hold less of it. 
C)  increases when the interest rate decreases, so people desire to hold more of it. 
D)  increases when the interest rate decreases, so people desire to hold less of it. 
A)  decreases when the interest rate decreases, so people desire to hold more of it. 
B)  decreases when the interest rate decreases, so people desire to hold less of it. 
C)  increases when the interest rate decreases, so people desire to hold more of it. 
D)  increases when the interest rate decreases, so people desire to hold less of it.

Question 11

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect

Question 12

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need

Question 13

As real GDP falls,

Accepted Answer

A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls. 
A)  money demand rises, so the interest rate rises. 
B)  money demand rises, so the interest rate falls 
C)  money demand falls, so the interest rate rises. 
D)  money demand falls, so the interest rate falls.

Question 14

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 15

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct. 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct.

Question 16

An example of an automatic stabilizer is

Accepted Answer

A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession. 
A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession.

Question 17

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

Accepted Answer

A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money. 
A)  sales of government bonds, which reduces interest rates and causes people to hold less money. 
B)  purchases of government bonds, which reduces interest rates and causes people to hold less money. 
C)  purchases of government bonds, which reduces interest rates and causes people to hold more money. 
D)  sales of government bonds, which reduces interest rates and causes people to hold more money.

Question 18

The interest rate falls if

Accepted Answer

A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises. 
A)  the price level falls or the money supply falls. 
B)  the price level falls or the money supply rises. 
C)  the price level rises or the money supply falls. 
D)  the price level rises or the money supply rises.

Question 19

For the U.S. economy, money holdings are a

Accepted Answer

A)  large part of household wealth, and so the interest-rate effect is large. 
B)  large part of household wealth, and so the wealth effect is large. 
C)  small part of household wealth, and so the interest-rate effect is small. 
D)  small part of household wealth, and so the wealth effect is small. 
A)  large part of household wealth, and so the interest-rate effect is large. 
B)  large part of household wealth, and so the wealth effect is large. 
C)  small part of household wealth, and so the interest-rate effect is small. 
D)  small part of household wealth, and so the wealth effect is small.

Question 20

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)  an "easy" monetary policy. 
B)  a "passive" monetary policy. 
C)  a "practical" monetary policy. 
D)  an "active" monetary policy. 
A)  an "easy" monetary policy. 
B)  a "passive" monetary policy. 
C)  a "practical" monetary policy. 
D)  an "active" monetary policy.

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

In the long run, the level of output

Monetary policy

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. The marginal propensity to consume for this economy is

The ease with which an asset can be converted into the medium of exchange is known as _____.

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Which of the following illustrates how the investment accelerator works?

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

The opportunity cost of holding money

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

As real GDP falls,

Unemployment insurance and welfare programs work as automatic stabilizers.

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

An example of an automatic stabilizer is

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

The interest rate falls if

For the U.S. economy, money holdings are a

A policy that results in slow and steady growth of the money supply is an example of

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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