Question 1

According to supply-side theories,what happens if the government cuts the tax rate?

Accepted Answer

A)   Workers keep less of each additional dollar they earn,so work effort increases,and aggregate supply shifts right.
B)   Workers keep less of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.
C)   Workers keep more of each additional dollar they earn,so work effort increases,and aggregate supply shifts right.
D)   Workers keep more of each additional dollar they earn,so work effort decreases,and aggregate supply shifts left.E) B) and C)
F) A) and D)

Question 2

What is most likely to happen in the short run?

Accepted Answer

A)   The price level alone adjusts to balance the supply and demand for money.
B)   Output responds to changes in the aggregate demand for goods and services.
C)   Changes in the money supply cause a proportional change in the price level.
D)   Changes in available production technology for turning capital and labour into output.E) A) and C)
F) None of the above

Question 3

Which statement is consistent with the supply-side theories?

Accepted Answer

A)   When there is a recession,the Bank of Canada should decrease the money supply.
B)   A shift in aggregate supply leads to a permanent increase in the natural rate of output.
C)   The government should periodically increase the minimum wage and unemployment insurance benefits.
D)   Aggregate demand does not shift in the short run.E) None of the above
F) B) and C) B

Question 4

If the federal government cuts spending to balance the federal budget,how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?

Accepted Answer

A)   by increasing the money supply
B)   by decreasing the money supply
C)   by raising taxes
D)   by cutting expendituresE) A) and D)
F) B) and C) A

Question 5

Which policy alternative would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

Accepted Answer

A)   increasing taxes
B)   increasing the money supply
C)   increasing government expenditures
D)   increasing the government deficitE) C) and D)
F) A) and C)

Question 6

A decrease in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

A)   aggregate demand right
B)   aggregate demand left
C)   aggregate supply right
D)   aggregate supply leftE) All of the above
F) A) and B)

Question 7

What is the effect of a stock market boom,and how could the Bank of Canada offset that effect?

Accepted Answer

A)   Aggregate demand increases,which Bank of Canada could offset by increasing the money supply.
B)   Aggregate supply increases,which Bank of Canada could offset by increasing the money supply.
C)   Aggregate demand increases,which Bank of Canada could offset by decreasing the money supply.
D)   Aggregate supply increases,which Bank of Canada could offset by decreasing the money supply.E) A) and B)
F) B) and C)

Question 8

If there are automatic stabilizers but no deliberate action by policymakers,how would government expenditures and taxes change as output falls?

Accepted Answer

A)   Both government expenditures and taxes fall.
B)   Both government expenditures and taxes rise.
C)   Government expenditures rise and taxes fall.
D)   Government expenditures fall and taxes rise.E) C) and D)
F) A) and B)

Question 9

Consider the income-expenditure identity in a closed economy,Y = C + I + G.Suppose consumption is always a fraction MPC of income,C = MPC×Y.
a.Show that income Y is equal to (I + G) / (1 - MPC).
b.Show that an increase in G by an amount ÄG increases income by ÄG / (1 - MPC)when investment is considered constant with respect to Y.What is the ratio 1 / (1 - MPC)called?

Accepted Answer

a.In the income-expenditure identity Y=C...

Question 10

If inflation is zero,then the nominal and real interest rates are the same.

Accepted Answer

A) True 
 B)False

Question 11

According to liquidity-preference theory,if the quantity of money supplied is greater than the quantity demanded,what will happen to the interest rate and the quantity of money demanded?

Accepted Answer

A)   The interest rate will increase,and the quantity of money demanded will decrease.
B)   The interest rate will increase,and the quantity of money demanded will increase.
C)   The interest rate will decrease,and the quantity of money demanded will decrease.
D)   The interest rate will decrease,and the quantity of money demanded will increase.E) All of the above
F) A) and B) D

Question 12

When making a case against active stabilization policies,what do some economists argue?

Accepted Answer

A)   Monetary policy should not be used to stabilize the economy.
B)   Policy instruments cannot be used to achieve long-term goals.
C)   Fiscal policies are theoretically invalid as instruments for stabilizing the economy.
D)   The impact of policies does not last long enough for the problem to be solved.E) All of the above
F) C) and D)

Question 13

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)   It induces firms to invest more.
B)   It induces households to increase consumption.
C)   It shifts money demand to the right.
D)   It leads to the appreciation of the exchange rate.E) A) and B)
F) A) and C)

Question 14

According to the theory of liquidity preference,what does a decrease in the price level cause the interest rate and investment to do?

Accepted Answer

A)   It causes both the interest rate and investment to rise.
B)   It causes both the interest rate and investment to fall.
C)   It causes the interest rate to rise and investment to fall.
D)   It causes the interest rate to fall and investment to rise.E) None of the above
F) B) and C)

Question 15

If the MPC = 0.8,what is the government purchases multiplier?

Accepted Answer

A)   0.20
B)   0.50
C)   2
D)   5E) A) and B)
F) A) and D)

Question 16

Which statement is consistent with the long-run theories studied?

Accepted Answer

A)   In the long run,output responds to the aggregate demand and supply of goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.
B)   In the long run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
C)   In the long run,output is determined by the amount of capital,labour,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.
D)   In the long run,output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.E) B) and C)
F) B) and D)

Question 17

Which statement do opponents of active stabilization policy believe?

Accepted Answer

A)   Fiscal policy cannot stabilize the economy even in theory.
B)   Fiscal policy has no impact in the long run.
C)   The effects of monetary policy may last for several years.
D)   The Bank of Canada should try to fine-tune the economy with steady growth in the money supply.E) B) and C)
F) A) and D)

Question 18

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following shifts money demand to the right?

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) A) and C)
F) A) and B)

Question 20

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases,the inte...

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

According to supply-side theories,what happens if the government cuts the tax rate?

Correct Answer
verified

What is most likely to happen in the short run?

Correct Answer
verified

Which statement is consistent with the supply-side theories?

Correct Answer
verified
B

If the federal government cuts spending to balance the federal budget,how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?

Correct Answer
verified
A

Which policy alternative would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

Correct Answer
verified

A decrease in government spending initially and primarily shifts which curve in what direction?

Correct Answer
verified

What is the effect of a stock market boom,and how could the Bank of Canada offset that effect?

Correct Answer
verified

If there are automatic stabilizers but no deliberate action by policymakers,how would government expenditures and taxes change as output falls?

Correct Answer
verified

Correct Answer
verified
a.In the income-expenditure identity Y=C...
View Answer

If inflation is zero,then the nominal and real interest rates are the same.

Correct Answer
verified

According to liquidity-preference theory,if the quantity of money supplied is greater than the quantity demanded,what will happen to the interest rate and the quantity of money demanded?

Correct Answer
verified
D

When making a case against active stabilization policies,what do some economists argue?

Correct Answer
verified

Which of the following is an effect of an increase in the interest rate?

Correct Answer
verified

According to the theory of liquidity preference,what does a decrease in the price level cause the interest rate and investment to do?

Correct Answer
verified

If the MPC = 0.8,what is the government purchases multiplier?

Correct Answer
verified

Which statement is consistent with the long-run theories studied?

Correct Answer
verified

Which statement do opponents of active stabilization policy believe?

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

Which of the following shifts money demand to the right?

Correct Answer
verified

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct Answer
verified
When the money supply increases,the inte...
View Answer

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

According to supply-side theories,what happens if the government cuts the tax rate?

Correct AnswerverifiedShow Answer

What is most likely to happen in the short run?

Correct AnswerverifiedShow Answer

Which statement is consistent with the supply-side theories?

Correct AnswerverifiedB

If the federal government cuts spending to balance the federal budget,how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?

Correct AnswerverifiedA

Which policy alternative would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

Correct AnswerverifiedShow Answer

A decrease in government spending initially and primarily shifts which curve in what direction?

Correct AnswerverifiedShow Answer

What is the effect of a stock market boom,and how could the Bank of Canada offset that effect?

Correct AnswerverifiedShow Answer

If there are automatic stabilizers but no deliberate action by policymakers,how would government expenditures and taxes change as output falls?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.In the income-expenditure identity Y=C...View AnswerShow Answer

If inflation is zero,then the nominal and real interest rates are the same.

Correct AnswerverifiedShow Answer

According to liquidity-preference theory,if the quantity of money supplied is greater than the quantity demanded,what will happen to the interest rate and the quantity of money demanded?

Correct AnswerverifiedD

When making a case against active stabilization policies,what do some economists argue?

Correct AnswerverifiedShow Answer

Which of the following is an effect of an increase in the interest rate?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,what does a decrease in the price level cause the interest rate and investment to do?

Correct AnswerverifiedShow Answer

If the MPC = 0.8,what is the government purchases multiplier?

Correct AnswerverifiedShow Answer

Which statement is consistent with the long-run theories studied?

Correct AnswerverifiedShow Answer

Which statement do opponents of active stabilization policy believe?

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

Which of the following shifts money demand to the right?

Correct AnswerverifiedShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases,the inte...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.In the income-expenditure identity Y=C...
View Answer

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the money supply increases,the inte...
View Answer