Question 1

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)  the demand-for-money curve is vertical.
B)  the supply-of-money curve is vertical.
C)  the interest rate is measured along the horizontal axis.
D)  the price level is measured along the vertical axis.E) B) and D)
F) A) and B)

Question 2

People choose to hold a larger quantity of money if

Accepted Answer

A)  the interest rate rises, which causes the opportunity cost of holding money to rise.
B)  the interest rate falls, which causes the opportunity cost of holding money to rise.
C)  the interest rate rises, which causes the opportunity cost of holding money to fall.
D)  the interest rate falls, which causes the opportunity cost of holding money to fall.E) All of the above
F) A) and B)

Question 3

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)  demand rightward by more than $100 billion.
B)  demand rightward by less than $100 billion.
C)  supply leftward by more than $100 billion.
D)  supply leftward by less than $100 billion.E) A) and B)
F) A) and C)

Question 4

If the interest rate is above the Fed's target, the Fed should

Accepted Answer

A)  buy bonds to increase the money supply.
B)  buy bonds to decrease the money supply.
C)  sell bonds to increase the money supply.
D)  sell bonds to decrease the money supply.E) None of the above
F) B) and C)

Question 5

Figure 34-8 1 to AD2. B) shift aggregate demand from AD1 to AD3. C) cause movement from point A to point B along AD1. D) have no effect on aggregate demand." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-8. An increase in taxes will

Accepted Answer

A)  shift aggregate demand from AD1 to AD2.
B)  shift aggregate demand from AD1 to AD3.
C)  cause movement from point A to point B along AD1.
D)  have no effect on aggregate demand.E) A) and C)
F) A) and B)

Question 6

Which of the following is an example of a decrease in government purchases?​

Accepted Answer

A)  ​The government cancels an order for new military equipment.
B)  ​The Federal Reserve sells government bonds.
C)  ​The government increases personal income taxes.
D)  ​The government decreases unemployment insurance benefit payments.E) None of the above
F) All of the above

Question 7

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) A) and D)
F) A) and B)

Question 8

​A​ccording to the IGM poll, what percentage of economists polled agreed that the benefits of ARRA exceeded the costs?

Accepted Answer

A)  ​75%
B)  ​19%
C)  ​6%
D)  ​97%E) A) and D)
F) A) and C)

Question 9

Figure 34-1 
-Refer to Figure 34-1. If the current interest rate is 2 percent,

Accepted Answer

A)  there is an excess supply of money.
B)  people will sell more bonds, which drives interest rates up.
C)  as the money market moves to equilibrium, people will buy more goods.
D)  All of the above are correct.E) All of the above
F) C) and D)

Question 10

When households find themselves holding too much money, they respond by

Accepted Answer

A)  purchasing interest-earning financial assets and interest rates fall.
B)  purchasing interest-earning financial assets and interest rates rise.
C)  holding the extra money and interest rates rise.
D)  selling interest-earning financial assets, which eliminates the excess supply of money.E) All of the above
F) A) and B)

Question 11

According to liquidity preference theory, an increase in the price level causes the interest rate to

Accepted Answer

A)  increase, which increases the quantity of goods and services demanded.
B)  increase, which decreases the quantity of goods and services demanded.
C)  decrease, which increases the quantity of goods and services demanded.
D)  decrease, which decreases the quantity of goods and services demanded.E) A) and D)
F) All of the above

Question 12

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases.
B)  supply of money until the interest rate decreases.
C)  demand for money until the interest rate increases.
D)  demand for money until the interest rate decreases.E) None of the above
F) A) and D)

Question 13

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 MartinE) All of the above
F) None of the above

Question 14

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

Accepted Answer

A)  1.33.
B)  7.
C)  4.
D)  3.E) A) and D)
F) A) and B)

Question 15

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will _____.

Accepted Answer

decrease t...

Question 16

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve...

Question 17

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)  increase aggregate demand in the short run and aggregate supply in the long run.
B)  increase aggregate supply in the short run and aggregate demand in the long run.
C)  only increase aggregate supply in the long run.
D)  only increase aggregate demand in the short run.E) B) and C)
F) A) and D)

Question 18

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)  the Federal Reserve could increase the money supply by buying bonds.
B)  the Federal Reserve could increase the money supply by selling bonds.
C)  the Federal Reserve could decrease the money supply by buying bonds.
D)  the Federal Reserve could decrease the money supply by selling bonds.E) A) and B)
F) None 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.
. 2 than it is at P1. B) the quantity of money is higher at Y1 than it is at Y2. C) an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" > 2 than it is at P1. B) the quantity of money is higher at Y1 than it is at Y2. C) an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A)  the quantity of goods and services demanded is higher at P2 than it is at P1.
B)  the quantity of money is higher at Y1 than it is at Y2.
C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
D)  All of the above are correct.E) A) and C)
F) All of the above

Question 20

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)  0.2 and the multiplier is 1.25.
B)  0.8 and the multiplier is 5.
C)  -0.2 and the multiplier is 1.25.
D)  0.8 and the multiplier is 8.E) C) and D)
F) B) and D)

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

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Correct Answer
verified

On the graph that depicts the theory of liquidity preference,

Correct Answer
verified

If the interest rate is above the Fed's target, the Fed should

Correct Answer
verified

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Correct Answer
verified

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will _____.

Correct Answer
verified
decrease t...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct Answer
verified

According to the IGM poll, what percentage of economists polled agreed that the benefits of ARRA exceeded the costs?

Correct Answer
verified

When households find themselves holding too much money, they respond by

Correct Answer
verified

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
verified
price leve...
View Answer

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct Answer
verified

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

People choose to hold a larger quantity of money if

Correct Answer
verified

Which of the following is an example of a decrease in government purchases?

Correct Answer
verified

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct Answer
verified

Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

Correct Answer
verified

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct Answer
verified

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

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

If the interest rate is above the Fed's target, the Fed should

Correct AnswerverifiedShow Answer

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Correct AnswerverifiedShow Answer

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will _____.

Correct Answerverifieddecrease t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

​A​ccording to the IGM poll, what percentage of economists polled agreed that the benefits of ARRA exceeded the costs?

Correct AnswerverifiedShow Answer

When households find themselves holding too much money, they respond by

Correct AnswerverifiedShow Answer

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Correct Answerverifiedprice leve...View AnswerShow Answer

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct AnswerverifiedShow Answer

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

People choose to hold a larger quantity of money if

Correct AnswerverifiedShow Answer

Which of the following is an example of a decrease in government purchases?​

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in taxes will

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
decrease t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

According to the IGM poll, what percentage of economists polled agreed that the benefits of ARRA exceeded the costs?

Correct Answer
verified

Correct Answer
verified

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

Correct Answer
verified
price leve...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Which of the following is an example of a decrease in government purchases?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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