Question 1

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)   6/5, so a $200 increase in government spending increases aggregate demand by $240.
B)   5, so a $200 increase in government spending increases aggregate supply by $1000.
C)   6, so a $200 increase in government spending increases aggregate demand by $1200.
D)   6/5, so a $200 increase in government spending increases aggregate supply by $1200.E) All of the above
F) None of the above

Question 2

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 3

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)   Money demand shifts rightward.
B)   Initially there is an excess demand for money in the money market.
C)   The interest rate rises.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 4

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 5

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

monetary, ...

Question 6

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)   the interest rate falls and aggregate supply is relatively flat
B)   the interest rate falls and aggregate supply is relatively steep
C)   the interest rate rises and aggregate supply is relatively flat
D)   the interest rate rises and aggregate supply is relatively steepE) A) and B)
F) A) and C)

Question 7

Figure 34-1 
-Refer to Figure 34-1. Which of the following is correct?

Accepted Answer

A)   If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall.
B)   If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise.
C)   Starting with an interest rate of 4 percent, the demand for goods and services will increase until the money market reaches a new equilibrium.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 8

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) A) and B)
F) None of the above

Question 9

People might withdraw money from 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 B)
F) A) and C)

Question 10

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)   increased interest rates, and the economy avoided a recession.
B)   increased interest rates, but the economy was unable to avoid a recession.
C)   decreased interest rates, and the economy avoided a recession.
D)   decreased interest rates, but the economy was unable to avoid a recession.E) None of the above
F) All of the above

Question 11

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   decrease the money supply
B)   increase government expenditures
C)   increase taxes
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 12

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 multiplier for this economy is

Accepted Answer

A)   2.85.
B)   1.53.
C)   4.00.
D)   7.00.E) A) and B)
F) All of the above

Question 13

Fiscal policy is determined by

Accepted Answer

A)   the president and Congress and involves changing government spending and taxation.
B)   the president and Congress and involves changing the money supply.
C)   the Federal Reserve and involves changing government spending and taxation.
D)   the Federal Reserve and involves changing the money supply.E) A) and D)
F) C) and D)

Question 14

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) A) and D)
F) A) and C)

Question 15

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.E) B) and C)
F) None of the above

Question 16

If there is excess money supply, people will

Accepted Answer

A)   deposit more into interest-bearing accounts, and the interest rate will fall.
B)   deposit more into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) C) and D)
F) A) and D)

Question 17

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.E) A) and C)
F) B) and D)

Question 18

Supply-side economists focus more than other economists on

Accepted Answer

A)   how fiscal policy affects consumption.
B)   the multiplier effect of fiscal policy.
C)   how fiscal policy affects aggregate supply.
D)   the money supply.E) B) and D)
F) All of the above

Question 19

Figure 34-2. 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 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

Accepted Answer

A)   The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
B)   An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
C)   A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
D)   An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.E) A) and D)
F) B) and C)

Question 20

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Accepted Answer

A)   U.S. citizens decide to hold more foreign bonds.
B)   People choose to hold more currency.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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 multiplier for this economy is

Correct Answer
verified

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

Correct Answer
verified

Supply-side economists focus more than other economists on

Correct Answer
verified

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

People might withdraw money from interest-bearing accounts,

Correct Answer
verified

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct Answer
verified

If the MPC is 5/6 then the multiplier is

Correct Answer
verified

Fiscal policy is determined by

Correct Answer
verified

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct Answer
verified

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Correct Answer
verified

Monetary policy

Correct Answer
verified

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct Answer
verified

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

Correct Answer
verified

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct Answer
verified

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct Answer
verified

If there is excess money supply, people will

Correct Answer
verified

Other things the same, which of the following happens if the price level rises?

Correct Answer
verified

Correct Answer
verified

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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 multiplier for this economy is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct AnswerverifiedShow Answer

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

People might withdraw money from interest-bearing accounts,

Correct AnswerverifiedShow Answer

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct AnswerverifiedShow Answer

If the MPC is 5/6 then the multiplier is

Correct AnswerverifiedShow Answer

Fiscal policy is determined by

Correct AnswerverifiedShow Answer

Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. Which of the following is correct?

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct AnswerverifiedShow Answer

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct AnswerverifiedShow Answer

If there is excess money supply, people will

Correct AnswerverifiedShow Answer

Other things the same, which of the following happens if the price level rises?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

Correct Answer
verified

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Correct Answer
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Correct Answer
verified

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

Correct Answer
verified
monetary, ...
View Answer

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