Question 1

Unemployment insurance benefits are an example of _____.

Accepted Answer

automatic ...

Question 2

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 3

Figure 34-5 1 to AD3. B) shift aggregate demand from AD1 to AD2. C) cause movement from point C to point D along AD1. D) have no effect on aggregate demand." class="answers-bank-image d-inline" rel="preload" > ​
​
​
-Refer to Figure 34-5. An increase in government purchases will

Accepted Answer

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

Question 4

Figure 34-4 1 to r3? A) A increase in the price level B) A increase in the number of firms building new factories and buying new equipment C) An decrease in the price level D) An decrease in the number of firms building new factories and buying new equipment" class="answers-bank-image d-inline" rel="preload" > ​
​
-Refer to Figure 34-4. Which of the following events could explain an increase in the equilibrium interest rate from r1 to r3?

Accepted Answer

A)  A increase in the price level
B)  A increase in the number of firms building new factories and buying new equipment
C)  An decrease in the price level
D)  An decrease in the number of firms building new factories and buying new equipmentE) A) and B)
F) All of the above

Question 5

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

Accepted Answer

monetary, ...

Question 6

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 7

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)  the quantity of money supplied is greater than the quantity of money demanded.E) B) and C)
F) C) and D)

Question 8

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)  proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)  monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)  changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)  changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.E) A) and D)
F) B) and D)

Question 9

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)  feel that fiscal and monetary policy should only be used to counteract short-run fluctuations but not long-run goals.E) B) and D)
F) B) and C)

Question 10

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 11

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 12

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 D)
F) A) and C)

Question 13

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase, ...

Question 14

Changes in the interest rate

Accepted Answer

A)  shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
B)  shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy.
C)  shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.
D)  do not shift aggregate demand.E) B) and D)
F) A) and C)

Question 15

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A)  Wealth effect, exchange-rate effect, interest-rate effect
B)  Exchange-rate effect, interest-rate effect, wealth effect
C)  Interest-rate effect, wealth effect, exchange-rate effect
D)  Interest-rate effect, exchange-rate effect, wealth effectE) B) and D)
F) B) and C)

Question 17

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 18

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 19

When there is an excess supply of money,

Accepted Answer

A)  people will try to get rid of money causing interest rates to rise.Investment increases.
B)  people will try to get rid of money causing interest rates to fall.Investment decreases.
C)  people will try to get rid of money causing interest rates to fall.Investment increases.
D)  people will try to get rid of money causing interest rates to rise.Investment decreases.E) None of the above
F) B) and D)

Question 20

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

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

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Correct AnswerverifiedShow Answer

Unemployment insurance benefits are an example of _____.

Correct Answerverifiedautomatic ...View AnswerShow Answer

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct AnswerverifiedShow Answer

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

Both monetary policy and fiscal policy affect aggregate demand.

Correct AnswerverifiedShow Answer

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

Monetary policy affects the economy with a long lag, in part because

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

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Correct Answerverifiedincrease, ...View AnswerShow Answer

Figure 34-5 ​ ​ ​ -Refer to Figure 34-5. An increase in government purchases will

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Changes in the interest rate

Correct AnswerverifiedShow Answer

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Correct AnswerverifiedShow Answer

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct AnswerverifiedShow Answer

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Correct AnswerverifiedShow Answer

Figure 34-4 ​ ​ -Refer to Figure 34-4. Which of the following events could explain an increase in the equilibrium interest rate from r1 to r3?

Correct AnswerverifiedShow Answer

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

Other things the same, automatic stabilizers tend to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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automatic ...
View Answer

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

Correct Answer
verified
monetary, ...
View Answer

To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

Correct Answer
verified
increase, ...
View Answer

Figure 34-5 -Refer to Figure 34-5. An increase in government purchases will

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

Correct Answer
verified

Correct Answer
verified

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

Correct Answer
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Correct Answer
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Correct Answer
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Figure 34-4 -Refer to Figure 34-4. Which of the following events could explain an increase in the equilibrium interest rate from r₁ to r₃?

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

Correct Answer
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