Question 1

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

A)   decrease taxes
B)   increase government expenditures
C)   increase the money supply
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 2

When the Fed lowers the growth rate of the money supply,it must take into account

Accepted Answer

A)   only the short-run effect on production.
B)   only the short-run effects on inflation and production.
C)   only the long-run effect on inflation.
D)   the long-run effect on inflation as well as the short-run effect on production.E) A) and B)
F) A) and C)

Question 3

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)   Congress passed a law requiring them to do so.
B)   the President requested them to do so.
C)   the money supply is hard to measure with sufficient precision.
D)   changes in the interest rate change aggregate demand,but changes in the money supply do not.E) A) and B)
F) All of the above

Question 4

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)   neither the level of output nor the level of prices.
B)   the level of output,but not in the level of prices.
C)   the level of prices,but not in the level of output.
D)   the level of output and in the level of prices.E) None of the above
F) A) and D)

Question 5

When Congress reduces spending in order to balance the government's budget,it needs to consider

Accepted Answer

A)   both the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth.
B)   only the short-run effects on aggregate demand and aggregate supply.
C)   only the long-run effects on saving and growth.
D)   only the long-run effects on aggregate demand and aggregate supply.E) B) and C)
F) None of the above

Question 6

When the government reduces taxes,which of the following decreases?

Accepted Answer

A)   consumption
B)   take-home pay
C)   household saving
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 7

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that ...

Question 8

An increase in the U.S.interest rate

Accepted Answer

A)   raises the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to a depreciation of the U.S.dollar.E) A) and B)
F) All of the above

Question 9

When the interest rate increases,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.E) None of the above
F) A) and C)

Question 10

The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

Accepted Answer

A)   MPC = 1/2,and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.
B)   MPC = 2/3,and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures
C)   MPC = 3/4,and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 11

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 12

Figure 21-7. 1 to AD2 as a result of A)  an increase in government purchases. B)  a decrease in stock prices. C)  consumers and firms becoming more optimistic about the future. D)  an increase in the price level." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-7.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 stock prices.
C)   consumers and firms becoming more optimistic about the future.
D)   an increase in the price level.E) All of the above
F) C) and D)

Question 13

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

Accepted Answer

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

Question 14

When the interest rate is above the equilibrium level,

Accepted Answer

A)   the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)   people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)   bond issuers and banks respond by lowering the interest rates they offer.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 15

In recent years,the Federal Reserve has conducted policy by setting a target for the

Accepted Answer

A)   size of the money supply.
B)   growth rate of the money supply.
C)   federal funds rate.
D)   discount rate.E) A) and B)
F) A) and C)

Question 16

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

A) True 
 B)False

Question 17

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 18

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

Question 19

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) A) and B)
F) A) and C)

Question 20

Scenario 21-1.Take the following information as given for a small,imaginary economy:
 
-Refer to Scenario 21-1.For this economy,an initial increase of $500 in net exports translates into a

Accepted Answer

A)   $2,000 increase in aggregate demand when the crowding-out effect is taken into account.
B)   $2,500 increase in aggregate demand when the crowding-out effect is taken into account.
C)   $2,000 increase in aggregate demand in the absence of the crowding-out effect.
D)   $2,500 increase in aggregate demand in the absence of the crowding-out effect.E) B) and D)
F) A) and B)

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

What is the value of the multiplier if the marginal propensity to consume is 0.5?

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The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

Correct AnswerverifiedShow Answer

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct AnswerverifiedShow Answer

When the government reduces taxes,which of the following decreases?

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.For this economy,an initial increase of $500 in net exports translates into a

Correct AnswerverifiedShow Answer

When the Fed lowers the growth rate of the money supply,it must take into account

Correct AnswerverifiedShow Answer

Figure 21-7. -Refer to Figure 21-7.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant.The owner of the company that builds the plant pays her workers.The workers increase their spending.Firms from which the workers buy goods increase their output.This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

Suppose that the government spends more on a missile defense program.What does this do to aggregate demand? How is you answer affected by the presence of the multiplier,crowding-out,taxes,and investment-accelerator effects?

Correct AnswerverifiedThe increase in expenditures means that ...View AnswerShow Answer

When Congress reduces spending in order to balance the government's budget,it needs to consider

Correct AnswerverifiedShow Answer

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Correct AnswerverifiedShow Answer

In recent years,the Federal Reserve has conducted policy by setting a target for the

Correct AnswerverifiedShow Answer

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

Correct AnswerverifiedShow Answer

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Correct AnswerverifiedShow Answer

When the interest rate is above the equilibrium level,

Correct AnswerverifiedShow Answer

An increase in the U.S.interest rate

Correct AnswerverifiedShow Answer

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Figure 21-7. -Refer to Figure 21-7.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

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The increase in expenditures means that ...
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