Question 1

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) None of the above
F) A) and D)

Question 2

Figure 34-5.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.
 1 to r2,then A)  there would be no crowding out. B)  the full multiplier effect of the increase in government purchases would be realized. C)  the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-5.Suppose the graphs are drawn to show the effects of an increase in government purchases.If it were not for the increase in r from r1 to r2,then

Accepted Answer

A)   there would be no crowding out.
B)   the full multiplier effect of the increase in government purchases would be realized.
C)   the AD curves that actually apply,before and after the change in government purchases,would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 3

Suppose there are both multiplier and crowding out effects but without any accelerator effects.An increase in government expenditures would definitely

Accepted Answer

A)   shift aggregate demand right by a larger amount than the increase in government expenditures.
B)   shift aggregate demand right by the same amount as an the increase in government expenditures.
C)   shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)   Any of the above outcomes are possible.E) All of the above
F) A) and B)

Question 4

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 5

In the short run,open-market sales

Accepted Answer

A)   increase the price level and real GDP.
B)   decrease the price level and real GDP.
C)   increases the price level and decreases real GDP.
D)   decreases the price level and increases real GDP.E) C) and D)
F) B) and C)

Question 6

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.E) C) and D)
F) All of the above

Question 7

If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)   increase by $250 billion.
B)   increase by $175 billion.
C)   increase by $350 billion.
D)   None of the above are correct.E) A) and B)
F) All of the above

Question 8

Macroeconomic forecasts are

Accepted Answer

A)   precise;this makes policy lags less relevant.
B)   precise;this makes policy lags more relevant.
C)   imprecise;this makes policy lags less relevant.
D)   imprecise;this makes policy lags more relevant.E) A) and B)
F) B) and D)

Question 9

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) None of the above
F) All of the above

Question 10

An increase in the U.S.interest rate

Accepted Answer

A)   reduces the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to an appreciation of the U.S.dollar.E) B) and C)
F) C) and D)

Question 11

If the multiplier is 2.5,then the MPC is

Accepted Answer

A)   0.2.
B)   0.6.
C)   0.75.
D)   1.00.E) B) and D)
F) C) and D)

Question 12

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) C) and D)
F) B) and D)

Question 13

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) B) and D)
F) All of the above

Question 14

People might deposit more money into interest-bearing accounts,

Accepted Answer

A)   making the interest rate fall,if there is a surplus in the money market.
B)   making the interest rate rise,if there is a surplus in the money market.
C)   making the interest rate fall,if there is a shortage in the money market.
D)   making the interest rate rise,if there is a shortage in the money market.E) A) and C)
F) B) and C)

Question 15

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)   the effects of changes in money demand and supply on interest rates.
B)   the effects of changes in money demand and supply on exchange rates.
C)   the effects of wealth on expenditures.
D)   the difference between temporary and permanent changes in income.E) None of the above
F) A) and B)

Question 16

During recessions,automatic stabilizers tend to make the government's budget

Accepted Answer

A)   move toward deficit.
B)   move toward surplus.
C)   move toward balance.
D)   not necessarily move the budget in any particular direction.E) A) and B)
F) All of the above

Question 17

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A)   buy bonds and raise the reserve requirement
B)   buy bonds and lower the reserve requirement
C)   sell bonds and raise the reserve requirement
D)   sell bonds and lower the reserve requirementE) C) and D)
F) B) and D)

Question 18

In the short run,a decrease in the money supply causes interest rates to

Accepted Answer

A)   increase,and aggregate demand to shift right.
B)   increase,and aggregate demand to shift left.
C)   decrease,and aggregate demand to shift right.
D)   decrease,and aggregate demand to shift left.E) A) and B)
F) A) and C)

Question 19

Other things the same,automatic stabilizers tend to

Accepted Answer

A)   raise expenditures during expansions and recessions.
B)   lower expenditures during expansions and recessions.
C)   raise expenditures during recessions and lower expenditures during expansions.
D)   raise expenditures during expansions and lower expenditures during recessions.E) A) and B)
F) A) and C)

Question 20

Opponents of active stabilization policy

Accepted Answer

A)   advocate a monetary policy designed to offset changes in the unemployment rate.
B)   argue that fiscal policy is unable to change aggregate demand or aggregate supply.
C)   believe that the political process creates lags in the implementation of fiscal policy.
D)   None of the above is correct.E) None of the above
F) B) and C)

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

Liquidity preference refers directly to Keynes' theory concerning

Correct Answer
verified

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Correct Answer
verified

During recessions,automatic stabilizers tend to make the government's budget

Correct Answer
verified

Which of the following Fed actions would both increase the money supply?

Correct Answer
verified

The theory of liquidity preference is most helpful in understanding

Correct Answer
verified

Other things the same,automatic stabilizers tend to

Correct Answer
verified

Correct Answer
verified

Macroeconomic forecasts are

Correct Answer
verified

Suppose there are both multiplier and crowding out effects but without any accelerator effects.An increase in government expenditures would definitely

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

If the multiplier is 2.5,then the MPC is

Correct Answer
verified

Supply-side economists believe that a reduction in the tax rate

Correct Answer
verified

In the short run,a decrease in the money supply causes interest rates to

Correct Answer
verified

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

Correct Answer
verified

Which of the following events would shift money demand to the left?

Correct Answer
verified

An increase in the U.S.interest rate

Correct Answer
verified

People might deposit more money into interest-bearing accounts,

Correct Answer
verified

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

Correct Answer
verified

If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to

Correct Answer
verified

In the short run,open-market sales

Correct Answer
verified

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

Liquidity preference refers directly to Keynes' theory concerning

Correct AnswerverifiedShow Answer

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Correct AnswerverifiedShow Answer

During recessions,automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

Which of the following Fed actions would both increase the money supply?

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

Other things the same,automatic stabilizers tend to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Macroeconomic forecasts are

Correct AnswerverifiedShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects.An increase in government expenditures would definitely

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

If the multiplier is 2.5,then the MPC is

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

In the short run,a decrease in the money supply causes interest rates to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

An increase in the U.S.interest rate

Correct AnswerverifiedShow Answer

People might deposit more money into interest-bearing accounts,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the multiplier is 7 and if there is no crowding-out effect,then a $50 billion increase in government expenditures causes aggregate demand to

Correct AnswerverifiedShow Answer

In the short run,open-market sales

Correct AnswerverifiedShow Answer

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