Question 1

Scenario 16-2. 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 16-2. 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) B) and C)
F) A) and B)

Question 2

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   decrease the money supply
B)   increase government expenditures
C)   increase taxes
D)   All of the above are correct.E) None of the above
F) All of the above

Question 3

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 4

People will want to hold more money if the price level

Accepted Answer

A)   or if the interest rate increases.
B)   or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) None of the above
F) C) and D)

Question 5

People hold money primarily because it

Accepted Answer

A)   has a guaranteed nominal return.
B)   serves as a store of value.
C)   can directly be used to buy goods and services.
D)   functions as a unit of account.E) C) and D)
F) All of the above

Question 6

If the multiplier is 2.5, then the MPC is

Accepted Answer

A)   0.2.
B)   0.6.
C)   0.75.
D)   1.00.E) None of the above
F) A) and B)

Question 7

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)   shortage in the money market, so people will want to sell bonds.
B)   shortage in the money market, so people will want to buy bonds.
C)   surplus in the money market, so people will want to sell bonds.
D)   surplus in the money market, so people will want to buy bonds.E) B) and C)
F) A) and D)

Question 8

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)   the money supply of a given increase in government purchases.
B)   tax revenues of a given increase in government purchases.
C)   investment of a given increase in interest rates.
D)   aggregate demand of a given increase in government purchases.E) A) and B)
F) B) and D)

Question 9

Figure 16-2. 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 16-2. If the money-supply curve MS on the left-hand graph were to shift to the right, this would

Accepted Answer

A)   represent an action taken by the Federal Reserve.
B)   shift the AD curve to the left.
C)   create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 10

Figure 16-5. On the figure, MS represents money supply and MD represents money demand.
 1 to MD2 could be a result of A)  a decrease in taxes. B)  an increase in government spending. C)  an increase in the price level. D)  All of the above are correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Accepted Answer

A)   a decrease in taxes.
B)   an increase in government spending.
C)   an increase in the price level.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 11

According to liquidity preference theory, a decrease 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) A) and C)
F) A) and B)

Question 12

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

Question 13

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m...

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 D)
F) A) and B)

Question 15

Tax cuts

Accepted Answer

A)   and increases in government expenditures shift aggregate demand right.
B)   and increases in government expenditures shift aggregate demand left.
C)   shift aggregate demand right while increases in government expenditures shift aggregate demand left.
D)   shift aggregate demand left while increases in government expenditures shift aggregate demand right.E) A) and B)
F) C) and D)

Question 16

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

Accepted Answer

A)   price level  ↑\uparrow↑⇒\Rightarrow⇒ demand for money  ↑\uparrow↑⇒\Rightarrow⇒ equilibrium interest rate  ↑\uparrow↑⇒\Rightarrow⇒ quantity of goods and services demanded  ↓\downarrow↓ 
B)   price level  ↑\uparrow↑⇒\Rightarrow⇒ demand for money  ↓\downarrow↓⇒\Rightarrow⇒ equilibrium interest rate  ↑\uparrow↑⇒\Rightarrow⇒ quantity of goods and services demanded  ↓\downarrow↓ 
C)   price level  ↓\downarrow↓⇒\Rightarrow⇒ demand for money  ↓\downarrow↓⇒\Rightarrow⇒ equilibrium interest rate  ↑\uparrow↑⇒\Rightarrow⇒ quantity of goods and services demanded  ↓\downarrow↓ 
D)   price level  ↑\uparrow↑⇒\Rightarrow⇒ equilibrium interest rate  ↑\uparrow↑⇒\Rightarrow⇒ demand for money  ↑\uparrow↑⇒\Rightarrow⇒ quantity of goods and services demanded  ↓\downarrow↓E) B) and C)
F) A) and D)

Question 17

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 interest rate falls and aggregate supply is relatively flat
B)   the interest rate falls and aggregate supply is relatively steep
C)   the interest rate rises and aggregate supply is relatively flat
D)   the interest rate rises and aggregate supply is relatively steepE) None of the above
F) C) and D)

Question 18

When the interest rate increases, the opportunity cost of holding money

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded increases.
D)   decreases, so the quantity of money demanded decreases.E) A) and B)
F) A) and C)

Question 19

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)   attempts to stabilize the economy do not constitute a proper role for government in a democratic society.
B)   these policies affect the economy with a long lag.
C)   these policies affect the economy too quickly and with too much impact.
D)   history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.E) B) and C)
F) A) and C)

Question 20

Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Accepted Answer

A)   right by $150 billion.
B)   right by $70 billion.
C)   right by $30 billion.
D)   None of the above is correct.E) B) and C)
F) A) and C)

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

According to liquidity preference theory, a decrease in the price level causes the interest rate to

Correct Answer
verified

Scenario 16-2. 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 16-2. In response to which of the following events could aggregate demand increase by $1,500?

Correct Answer
verified

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Correct Answer
verified

Correct Answer
verified

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct Answer
verified

The multiplier effect is exemplified by the multiplied impact on

Correct Answer
verified

Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Correct Answer
verified

What is the difference between monetary policy and fiscal policy?

Correct Answer
verified
The Federal Reserve Bank conducts U.S. m...
View Answer

Tax cuts

Correct Answer
verified

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD₁ to MD₂ could be a result of

Correct Answer
verified

Correct Answer
verified

When the interest rate increases, the opportunity cost of holding money

Correct Answer
verified

People will want to hold more money if the price level

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

If the multiplier is 2.5, then the MPC is

Correct Answer
verified

The primary argument against active monetary and fiscal policy is that

Correct Answer
verified

If the Federal Reserve increases the money supply, then initially there is a

Correct Answer
verified

People hold money primarily because it

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

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

According to liquidity preference theory, a decrease in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct AnswerverifiedShow Answer

The multiplier effect is exemplified by the multiplied impact on

Correct AnswerverifiedShow Answer

Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the aggregate-demand curve to the

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S. m...View AnswerShow Answer

Tax cuts

Correct AnswerverifiedShow Answer

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD1 to MD2 could be a result of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the interest rate increases, the opportunity cost of holding money

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the multiplier is 2.5, then the MPC is

Correct AnswerverifiedShow Answer

The primary argument against active monetary and fiscal policy is that

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially there is a

Correct AnswerverifiedShow Answer

People hold money primarily because it

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

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The Federal Reserve Bank conducts U.S. m...
View Answer

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verified

Figure 16-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-5. A shift of the money-demand curve from MD₁ to MD₂ could be a result of

Correct Answer
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Correct Answer
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