Question 1

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False  False

Question 2

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 3

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

interest-r...

Question 4

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Accepted Answer

If the interest rate is above equilibriu...

Question 5

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 6

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)  increase the money supply, which will reduce interest rates.
B)  decrease the money supply, which will reduce interest rates.
C)  increase the money supply, which will increase interest rates.
D)  decrease the money supply, which will increase interest rates.E) B) and C)
F) A) and B)

Question 7

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 8

According to liquidity preference theory, the money-supply curve would shift rightward

Accepted Answer

A)  if the money demand curve shifted right.
B)  if the Federal Reserve chose to increase the money supply.
C)  if the interest rate increased.
D)  if the price level increased.E) All of the above
F) A) and B)

Question 9

If taxes

Accepted Answer

A)  decrease, then consumption decreases, and aggregate demand shifts rightward.
B)  decrease, then consumption increases, and aggregate demand shifts leftward.
C)  increase, then consumption decreases, and aggregate demand shifts leftward.
D)  increase, then consumption increases, and aggregate demand shifts rightward.E) A) and C)
F) B) and C)

Question 10

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 11

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

animal spirits

Question 13

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises...

Question 14

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

fiscal policy

Question 15

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 16

If the Fed increases the money supply,

Accepted Answer

A)  the interest rate increases, which tends to raise stock prices.
B)  the interest rate increases, which tends to reduce stock prices.
C)  the interest rate decreases, which tends to raise stock prices.
D)  the interest rate decreases, which tends to reduce stock prices.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A)  always shift aggregate demand right by a larger amount than the increase in government expenditures.
B)  always shift aggregate demand right by the same amount as the increase in government expenditures.
C)  always shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)  shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures.E) A) and B)
F) None of the above

Question 18

According to liquidity preference theory, the money-supply curve is

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  vertical.
D)  horizontal.E) A) and C)
F) A) and B)

Question 19

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 20

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1...

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

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct AnswerverifiedFalse

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Correct AnswerverifiedShow Answer

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answerverifiedinterest-r...View AnswerShow Answer

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

Correct AnswerverifiedIf the interest rate is above equilibriu...View AnswerShow Answer

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Correct AnswerverifiedShow Answer

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

The ease with which an asset can be converted into the medium of exchange is known as _____.

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the money-supply curve would shift rightward

Correct AnswerverifiedShow Answer

If taxes

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct Answerverifiedanimal spirits

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Correct AnswerverifiedThe reduction in the money supply raises...View AnswerShow Answer

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Correct Answerverifiedfiscal policy

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the money-supply curve is

Correct AnswerverifiedShow Answer

The multiplier is computed as MPC / (1 - MPC).

Correct AnswerverifiedShow Answer

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct AnswerverifiedAn MPC of .9 means the multiplier = 1/(1...View AnswerShow Answer

Correct Answer
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False

Correct Answer
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The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Correct Answer
verified
interest-r...
View Answer

Correct Answer
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If the interest rate is above equilibriu...
View Answer

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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animal spirits

Correct Answer
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The reduction in the money supply raises...
View Answer

Correct Answer
verified
fiscal policy

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
An MPC of .9 means the multiplier = 1/(1...
View Answer