Question 1

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

Accepted Answer

A)  an increase in the interest rate or an increase in the price level
B)  an increase in the interest rate, but not an increase in the price level
C)  an increase in the price level, but not an increase in the interest rate
D)  neither an increase in the interest rate nor an increase in the price levelE) A) and C)
F) C) and D)

Question 2

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
B)  depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
C)  is responsible for the downward slope of the money-demand curve.
D)  is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.E) A) and B)
F) B) and D)

Question 3

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-.8) =...

Question 4

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) All of the above
F) B) and D)

Question 5

Other things the same, during recessions taxes tend to

Accepted Answer

A)  rise. The rise in taxes stimulates aggregate demand.
B)  rise. The rise in taxes contracts aggregate demand.
C)  fall. The fall in taxes stimulates aggregate demand.
D)  fall. The fall in taxes contracts aggregate demand.E) A) and D)
F) A) and B)

Question 6

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Accepted Answer

A) True 
 B)False

Question 7

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...

Question 8

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Accepted Answer

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

Question 9

As the interest rate falls,

Accepted Answer

A)  the quantity of money demanded falls, which would reduce a shortage.
B)  the quantity of money demanded falls, which would reduce a surplus.
C)  the quantity of money demanded rises, which would reduce a shortage.
D)  the quantity of money demanded rises, which would reduce a surplus.E) A) and C)
F) A) and D)

Question 10

For the following questions, use the diagram below:
Figure 21-7. 1 to AD2 as a result of A) an increase in government purchases. B) a decrease in stock prices. C) consumers and firms becoming more optimistic about the future. D) an increase in the price level." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-7. 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 stock prices.
C)  consumers and firms becoming more optimistic about the future.
D)  an increase in the price level.E) C) and D)
F) B) and C)

Question 11

If the marginal propensity to consume is 5/6, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)  $60 billion, but the effect would be larger if there were an investment accelerator.
B)  $60 billion, but the effect would be smaller if there were an investment accelerator.
C)  $120 billion, but the effect would be larger if there were an investment accelerator.
D)  $120 billion, but the effect would be smaller if there were an investment accelerator.E) None of the above
F) B) and C)

Question 12

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

A)  Keynesian in nature, and that her view is more valid for the long run than for the short run.
B)  classical in nature, and that her view is more valid for the long run than for the short run.
C)  Keynesian in nature, and that her view is more valid for the short run than for the long run.
D)  classical in nature, and that her view is more valid for the short run than for the long run.E) A) and C)
F) B) and C)

Question 13

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)  used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally.
B)  took the unusual step of using open-market operations to purchase mortgages and corporate debt.
C)  explicitly set its target rate of inflation at zero.
D)  explicitly set its target rate of inflation well above zero.E) A) and D)
F) C) and D)

Question 14

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $283 billion and $254.7 billion
B)  $283 billion and $283 billion
C)  $300 billion and $270 billion
D)  $300 billion and $300 billionE) B) and C)
F) All of the above

Question 15

If taxes

Accepted Answer

A)  increase, then consumption increases, and aggregate demand shifts rightward.
B)  increase, then consumption decreases, and aggregate demand shifts leftward.
C)  decrease, then consumption increases, and aggregate demand shifts leftward.
D)  decrease, then consumption decreases, and aggregate demand shifts rightward.E) B) and C)
F) None of the above

Question 16

Assume the MPC is 0.80. The multiplier is

Accepted Answer

A)  0.80.
B)  1.25.
C)  4.25.
D)  5.00.E) A) and B)
F) All of the above

Question 17

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall, so aggregate demand shifts right.
B)  the interest rate to fall, so aggregate demand shifts left.
C)  the interest rate to rise, so aggregate demand shifts right.
D)  the interest rate to rise, so aggregate demand shifts left.E) All of the above
F) B) and C)

Question 18

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A)  A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect.
B)  A stock-market boom stimulates consumer spending by $225, and there is an operative crowding-out effect.
C)  An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding-out effect.
D)  An economic boom overseas increases the demand for U.S. net exports by $225, and there is no crowding-out effect.E) A) and B)
F) None of the above

Question 19

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)  rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)  the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.
C)  changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate.
D)  our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.E) A) and B)
F) A) and C)

Question 20

Most economists believe that a cut in tax rates

Accepted Answer

A)  would generally increase government tax revenue.
B)  would have no effect on aggregate demand.
C)  has a relatively small effect on the aggregate-supply curve.
D)  All of the above are correct.E) C) and D)
F) A) and B)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

Assume the MPC is 0.80. The multiplier is

Correct Answer
verified

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

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

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

Correct Answer
verified

During the economic downturn of 2008-2009, the Federal Reserve

Correct Answer
verified

Other things the same, during recessions taxes tend to

Correct Answer
verified

Most economists believe that a cut in tax rates

Correct Answer
verified

If the marginal propensity to consume is 5/6, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct Answer
verified

If taxes

Correct Answer
verified

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct Answer
verified

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Correct Answer
verified

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct Answer
verified
The multiplier is 1/(1-MPC) = 1/(1-.8) =...
View Answer

As the interest rate falls,

Correct Answer
verified

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Correct Answer
verified

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

Assume the MPC is 0.80. The multiplier is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The interest-rate effect

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

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

Correct AnswerverifiedShow Answer

During the economic downturn of 2008-2009, the Federal Reserve

Correct AnswerverifiedShow Answer

Other things the same, during recessions taxes tend to

Correct AnswerverifiedShow Answer

Most economists believe that a cut in tax rates

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 5/6, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Correct AnswerverifiedShow Answer

If taxes

Correct AnswerverifiedShow Answer

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Correct AnswerverifiedShow Answer

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Correct AnswerverifiedShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/(1-MPC) = 1/(1-.8) =...View AnswerShow Answer

As the interest rate falls,

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

Correct Answer
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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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The multiplier is 1/(1-MPC) = 1/(1-.8) =...
View Answer

Correct Answer
verified

Correct Answer
verified

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

Correct Answer
verified