Question 1

The exchange-rate effect is based, in part, on the idea that

Accepted Answer

A)   a decrease in the price level reduces the interest rate.
B)   an increase in the price level causes investors to move some of their funds overseas.
C)   an increase in the price level causes domestic goods to become less expensive relative to foreign goods.
D)   a decrease in the price level reduces spending on net exports.E) B) and D)
F) None of the above

Question 2

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) None of the above
F) C) and D)

Question 3

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

Accepted Answer

increase, ...

Question 4

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Accepted Answer

The answer of To stabilize output, the Federal Reserve will...

Question 5

For the following questions, use the diagram below:
Figure 34-7 
-Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A)   an increase in government purchases.
B)   a decrease in net exports.
C)   households saving a smaller fraction of their income.
D)   a decrease in the price level.E) All of the above
F) A) and B)

Question 6

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) All of the above
F) B) and D)

Question 7

The term crowding-out effect refers to

Accepted Answer

A)   the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.
B)   the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.
C)   the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
D)   the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.E) A) and B)
F) B) and D)

Question 8

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 9

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 10

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)   rightward. In an attempt to stabilize the economy, the government could increase expenditures.
B)   rightward. In an attempt to stabilize the economy, the government could decrease expenditures.
C)   leftward. In an attempt to stabilize the economy, the government could increase expenditures.
D)   leftward. In an attempt to stabilize the economy, the government could decrease expenditures.E) B) and D)
F) C) and D)

Question 11

Which among the following assets is the most liquid?

Accepted Answer

A)   capital goods
B)   stocks and bonds with a low risk
C)   real estate
D)   funds in a checking accountE) B) and D)
F) C) and D)

Question 12

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Accepted Answer

A)   Dwight D. Eisenhower
B)   John F. Kennedy
C)   Ronald Reagan
D)   Bill ClintonE) B) and D)
F) B) and C)

Question 13

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a effect on...

Question 14

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in aggregate demand?

Accepted Answer

A)   Raise both taxes and expenditures by $5.56 billion dollars.
B)   Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars.
C)   Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars.
D)   Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.E) B) and C)
F) A) and C)

Question 15

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)   The price level rises, causing the interest rate to fall.
B)   The price level falls, causing the interest rate to fall.
C)   The money supply increases, causing the interest rate to fall.
D)   The money supply decreases, causing the interest rate to fall.E) A) and B)
F) B) and C)

Question 16

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 17

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) None of the above
F) B) and C)

Question 18

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) None of the above
F) All of the above

Question 19

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

Question 20

Changes in the interest rate help explain

Accepted Answer

A)   only the slope of, not shifts of aggregate demand.
B)   only shifts of, not the slope of aggregate demand.
C)   both the slope of and shifts of aggregate demand.
D)   neither the slope nor shifts of aggregate demand.E) A) and B)
F) None of the above

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

Correct Answer
verified

Monetary policy

Correct Answer
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According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Correct Answer
verified

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Correct Answer
verified

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct Answer
verified

An increase in the money supply decreases the interest rate in the short run.

Correct Answer
verified

A reduction in U.S net exports would shift U.S. aggregate demand

Correct Answer
verified

The term crowding-out effect refers to

Correct Answer
verified

An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

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

Correct Answer
verified

The exchange-rate effect is based, in part, on the idea that

Correct Answer
verified

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Correct Answer
verified

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Correct Answer
verified

In which of the following cases does the aggregate-demand curve shift to the right?

Correct Answer
verified

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct Answer
verified

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

Correct Answer
verified

Which among the following assets is the most liquid?

Correct Answer
verified

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

Correct Answer
verified
increase, ...
View Answer

Changes in the interest rate help explain

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Correct AnswerverifiedShow Answer

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Correct AnswerverifiedShow Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

A reduction in U.S net exports would shift U.S. aggregate demand

Correct AnswerverifiedShow Answer

The term crowding-out effect refers to

Correct AnswerverifiedShow Answer

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

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

For the following questions, use the diagram below: Figure 34-7 -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Correct AnswerverifiedShow Answer

The exchange-rate effect is based, in part, on the idea that

Correct AnswerverifiedShow Answer

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Correct AnswerverifiedShow Answer

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedincrease, ...View AnswerShow Answer

Changes in the interest rate help explain

Correct AnswerverifiedShow Answer

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An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

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

Correct Answer
verified
increase, ...
View Answer

Correct Answer
verified