Question 1

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Question 2

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

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 3

Figure 34-6. 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 34-6. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $40 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)  $15 billion. 
B)  $40 billion. 
C)  $35 billion. 
D)  $95 billion. 
A)  $15 billion. 
B)  $40 billion. 
C)  $35 billion. 
D)  $95 billion.

Question 4

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Changes in the interest rate bring the money market into equilibrium according to

Accepted Answer

A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory, but not classical theory. 
D)  classical theory, but not liquidity preference theory. 
A)  both liquidity preference theory and classical theory. 
B)  neither liquidity preference theory nor classical theory. 
C)  liquidity preference theory, but not classical theory. 
D)  classical theory, but not liquidity preference theory.

Question 6

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices. 
A)  increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. 
B)  increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply. However, this decrease would move the price level farther from its value before the rise in stock prices.

Question 7

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin 
A)  president George W. Bush 
B)  president John F. Kennedy 
C)  economist John Maynard Keynes 
D)  former chairman of the Federal Reserve System William McChesney Martin

Question 8

Figure 34-5. On the figure, MS represents money supply and MD represents money demand.  
-Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct. 
A)  The government cuts taxes, resulting in an increase in people's incomes. 
B)  The government reduces government spending, resulting in a decrease in people's incomes. 
C)  The Federal Reserve increases the supply of money, which decreases the interest rate. 
D)  All of the above are correct.

Question 9

Unemployment insurance benefits are an example of .

Accepted Answer

automatic

Question 10

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)  $216 billion. 
B)  $150 billion. 
C)  $600 billion. 
D)  $480 billion. 
A)  $216 billion. 
B)  $150 billion. 
C)  $600 billion. 
D)  $480 billion.

Question 11

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

Accepted Answer

A)  reduce interest rates by increasing the money supply. 
B)  increase interest rates by decreasing the money supply. 
C)  increase interest rates by increasing the money supply. 
D)  reduce interest rates by decreasing the money supply. 
A)  reduce interest rates by increasing the money supply. 
B)  increase interest rates by decreasing the money supply. 
C)  increase interest rates by increasing the money supply. 
D)  reduce interest rates by decreasing the money supply.

Question 12

Figure 34-1  
-Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 13

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion 
A)  $300 billion and $180 billion 
B)  $300 billion and $300 billion 
C)  $500 billion and $300 billion 
D)  $500 billion and $500 billion

Question 14

Which of the following is not an automatic stabilizer?

Accepted Answer

A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system 
A)  the minimum wage 
B)  the unemployment compensation system 
C)  the federal income tax 
D)  the welfare system

Question 15

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)  Jim decreases his consumption spending. 
B)  Firms sell fewer shares of new stock. 
C)  Firms spend more on investment. 
D)  None of the above is correct. 
A)  Jim decreases his consumption spending. 
B)  Firms sell fewer shares of new stock. 
C)  Firms spend more on investment. 
D)  None of the above is correct.

Question 16

According to John Maynard Keynes,

Accepted Answer

A)  the demand for money in a country is determined entirely by that nation's central bank. 
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country. 
C)  the interest rate adjusts to balance the supply of, and demand for, money. 
D)  the interest rate adjusts to balance the supply of, and demand for, goods and services. 
A)  the demand for money in a country is determined entirely by that nation's central bank. 
B)  the supply of money in a country is determined by the overall wealth of the citizens of that country. 
C)  the interest rate adjusts to balance the supply of, and demand for, money. 
D)  the interest rate adjusts to balance the supply of, and demand for, goods and services.

Question 17

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 18

If the MPC = 0.75, then the government purchases multiplier is about

Accepted Answer

A)  1.33. 
B)  7. 
C)  4. 
D)  3. 
A)  1.33. 
B)  7. 
C)  4. 
D)  3.

Question 19

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 20

Tax increases

Accepted Answer

A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right. 
A)  and increases in government expenditures shift aggregate demand right. 
B)  and increases in government expenditures shift aggregate demand left. 
C)  shift aggregate demand right while increases in government expenditures shift aggregate demand left. 
D)  shift aggregate demand left while increases in government expenditures shift aggregate demand right.

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

Fiscal policy affects the economy

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Changes in the interest rate bring the money market into equilibrium according to

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Unemployment insurance benefits are an example of .

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Which of the following is not an automatic stabilizer?

Which of the following actions might we logically expect to result from rising stock prices?

According to John Maynard Keynes,

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

If the MPC = 0.75, then the government purchases multiplier is about

When there is an excess demand for money, households will interest-bearing bonds, causing interest rates to _____.

Tax increases

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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