Question 1

Critics of stabilization policy argue that

Accepted Answer

A)   policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived.
B)   policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.
C)   policy affects aggregate demand with a lag, but the effects are short-lived.
D)   policy does not affect aggregate demand.E) A) and B)
F) B) and C)

Question 2

Figure 34-1 
-Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Accepted Answer

A)   2 percent.
B)   3 percent.
C)   4 percent.
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 3

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Accepted Answer

monetary, ...

Question 4

Government purchases are said to have a

Accepted Answer

A)   multiplier effect on aggregate supply.
B)   multiplier effect on aggregate demand.
C)   liquidity-enhancing effect on aggregate supply.
D)   liquidity-enhancing effect on aggregate demand.E) A) and C)
F) C) and D)

Question 5

If the government cuts the tax rate, workers get to keep

Accepted Answer

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

Question 6

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

Question 7

Figure 34-8 
-Refer to Figure 34-8. An increase in government purchases 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 B)
F) A) and C)

Question 8

According to the theory of liquidity preference,

Accepted Answer

A)   if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)   if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)   the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 9

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)   price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
B)   price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
C)   price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
D)   price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓E) All of the above
F) C) and D)

Question 10

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)   the wealth effect
B)   the interest-rate effect
C)   the exchange-rate effect
D)   All of the above are correct.E) None of the above
F) A) and B) D

Question 11

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) All of the above
F) None of the above

Question 12

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households, the...

Question 13

A decrease in government spending initially and primarily shifts

Accepted Answer

A)   aggregate demand to the right.
B)   aggregate demand to the left.
C)   aggregate supply to the right.
D)   neither aggregate demand nor aggregate supply.E) All of the above
F) B) and D) B

Question 14

Opponents of active stabilization policy

Accepted Answer

A)   generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)   generally agree that fiscal policy has no impact in the long run.
C)   believe some effects of monetary policy may be long-lived.
D)   think the Fed should simply try to fine tune the economy.E) A) and C)
F) None of the above

Question 15

Liquidity preference theory is most relevant to the

Accepted Answer

A)   short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)   short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)   long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)   long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) B) and C)
F) All of the above

Question 16

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

Accepted Answer

A)   rises and the aggregate quantity of goods demanded rises.
B)   rises and the aggregate quantity of goods demanded falls.
C)   falls and the aggregate quantity of goods demanded rises.
D)   falls and the aggregate quantity of goods demanded falls.E) A) and B)
F) None of the above

Question 17

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 18

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)   Jim decreases his consumption spending.
B)   Firms sell fewer shares of new stock.
C)   Firms spend more on investment.
D)   None of the above is correct.E) B) and C)
F) A) and C)

Question 19

Figure 34-3 
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) None of the above
F) B) and C)

Question 20

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 MPC is small and changes in the interest rate have a small effect on investment
B)   the MPC is small and changes in the interest rate have a large effect on investment
C)   the MPC is large and changes in the interest rate have a small effect on investment
D)   the MPC is large and changes in the interest rate have a large effect on investmentE) A) and B)
F) A) and C) B

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Critics of stabilization policy argue that

Correct Answer
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Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Correct Answer
verified

Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.

Correct Answer
verified
monetary, ...
View Answer

Government purchases are said to have a

Correct Answer
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If the government cuts the tax rate, workers get to keep

Correct Answer
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Correct Answer
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Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct Answer
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According to the theory of liquidity preference,

Correct Answer
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Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct Answer
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Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct Answer
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D

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

Correct Answer
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To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

Correct Answer
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A decrease in government spending initially and primarily shifts

Correct Answer
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B

Opponents of active stabilization policy

Correct Answer
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Liquidity preference theory is most relevant to the

Correct Answer
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According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

Correct Answer
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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 Answer
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Which of the following actions might we logically expect to result from rising stock prices?

Correct Answer
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Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct Answer
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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
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B

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Critics of stabilization policy argue that

Correct AnswerverifiedShow Answer

Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Correct AnswerverifiedShow Answer

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Correct Answerverifiedmonetary, ...View AnswerShow Answer

Government purchases are said to have a

Correct AnswerverifiedShow Answer

If the government cuts the tax rate, workers get to keep

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Correct AnswerverifiedShow Answer

A decrease in government spending initially and primarily shifts

Correct AnswerverifiedB

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

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

Which of the following actions might we logically expect to result from rising stock prices?

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

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 AnswerverifiedB

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Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.

Correct Answer
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monetary, ...
View Answer

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D

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To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

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B

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B