Question 1

The Employment Act of 1946 states that

Accepted Answer

A)   the Fed should use monetary policy only to control the rate of inflation.
B)   the government should promote full employment and production.
C)   the government should periodically increase the minimum wage and unemployment insurance benefits.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 2

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one- third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)   by $90 billion
B)   by $60 billion
C)   by $20 billion
D)   by $30 billionE) C) and D)
F) B) and D)

Question 3

Figure 34-14 
-Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Accepted Answer

The answer of Figure 34-14 
-Refer to Figure 34-14. Initial...

Question 4

Shifts in the aggregate-demand curve can cause fluctuations in

Accepted Answer

A)   neither the level of output nor the level of prices.
B)   the level of output, but not in the level of prices.
C)   the level of prices, but not in the level of output.
D)   the level of output and in the level of prices.E) None of the above
F) A) and C)

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) B) and D)
F) None of the above

Question 6

In the graph of the money market, the money supply curve is

Accepted Answer

A)   vertical. It shifts rightward if the Fed buys bonds.
B)   vertical. It shifts rightward if the Fed sells bonds.
C)   upward sloping. It shifts rightward if the Fed buys bonds.
D)   upward sloping. It shifts rightward if the Fed sells bonds.E) All of the above
F) A) and D)

Question 7

Which of the following statements is correct?

Accepted Answer

A)   Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium.
B)   Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium.
C)   Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium.
D)   Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium; classical theory assumes the interest rate adjusts to bring the money market into equilibrium.E) All of the above
F) A) and D)

Question 8

If the multiplier is 5.25, then the MPC is

Accepted Answer

A)   0.19.
B)   0.68.
C)   0.81.
D)   0.84.E) A) and C)
F) A) and B)

Question 9

According to liquidity preference theory, an increase in the price level causes the interest rate to

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) B) and C)
F) None of the above

Question 10

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)   None of the above is correct.E) None of the above
F) A) and C)

Question 11

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

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) A) and B)
F) A) and C)

Question 12

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. For this economy, an initial increase of $500 in government purchases translates into a

Accepted Answer

A)   $1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
B)   $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C)   $1,135 increase in aggregate demand when the crowding-out effect is taken into account.
D)   $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.E) C) and D)
F) A) and B)

Question 13

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Accepted Answer

A)   sell interest-bearing assets, causing the interest rate to decrease.
B)   sell interest-bearing assets, causing the interest rate to increase.
C)   buy interest-bearing assets, causing the interest rate to decrease.
D)   buy interest-bearing assets, causing the interest rate to increase.E) A) and D)
F) A) and C)

Question 14

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) A) and C)
F) All of the above

Question 15

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)   r = 0.06, P = 1.2
B)   r = 0.05, P = 1.0
C)   r = 0.04, P = 1.2
D)   r = 0.06, P = 1.0E) A) and C)
F) B) and D)

Question 16

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)   monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)   monetary policy can be described either in terms of the exchange rate or the interest rate.
C)   monetary policy must be described in terms of the money supply.
D)   monetary policy must be described in terms of the interest rate.E) A) and B)
F) A) and C)

Question 17

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) All of the above
F) C) and D)

Question 18

Which of the following is correct?

Accepted Answer

A)   A higher price level shifts money demand rightward.
B)   When money demand shifts rightward, the interest rate rises.
C)   A higher interest rate reduces the quantity of goods and services demanded.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 19

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 20

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) None of the above
F) B) and C)

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

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct Answer
verified

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

Correct Answer
verified

Other things the same, during recessions taxes tend to

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
verified

A decrease in government spending initially and primarily shifts

Correct Answer
verified

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. For this economy, an initial increase of $500 in government purchases translates into a

Correct Answer
verified

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct Answer
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If the multiplier is 5.25, then the MPC is

Correct Answer
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Which of the following events would shift money demand to the left?

Correct Answer
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If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Correct Answer
verified

In the graph of the money market, the money supply curve is

Correct Answer
verified

The Employment Act of 1946 states that

Correct Answer
verified

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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The theory of liquidity preference illustrates the principle that

Correct Answer
verified

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

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
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Correct Answer
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Which of the following is correct?

Correct Answer
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Opponents of active stabilization policy

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

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Correct AnswerverifiedShow Answer

Other things the same, during recessions taxes tend to

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

A decrease in government spending initially and primarily shifts

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

If the multiplier is 5.25, then the MPC is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

Correct AnswerverifiedShow Answer

In the graph of the money market, the money supply curve is

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

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Figure 34-14 -Refer to Figure 34-14. Initial equilibrium exists at point A. A decline in prices will cause households to _ their desired money holdings, moving the interest rate to _.

Correct Answer
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