Question 1

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 C)
F) A) and D)

Question 2

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

Question 3

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)   the smaller the MPC and the stronger the influence of income on money demand.
B)   the smaller the MPC and the weaker the influence of income on money demand.
C)   the larger the MPC and the stronger the influence of income on money demand.
D)   the larger the MPC and the weaker the influence of income on money demand.E) A) and B)
F) A) and C)

Question 4

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)   and taxes to fall.
B)   and taxes to rise.
C)   to rise and taxes to fall.
D)   to fall and taxes to rise.E) C) and D)
F) A) and B)

Question 5

Figure 34-6. 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 34-6. Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)   $75 billion.
B)   $40 billion.
C)   $30 billion.
D)   $20 billion.E) B) and C)
F) B) and D)

Question 6

An increase in the U.S. interest rate

Accepted Answer

A)   raises the opportunity cost of holding dollars.
B)   induces households to increase consumption.
C)   shifts money demand to the right.
D)   leads to a depreciation of the U.S. dollar.E) None of the above
F) B) and C)

Question 7

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)   increasing the money supply, which raises interest rates.
B)   increasing the money supply, which lowers interest rates.
C)   decreasing the money supply, which raises interest rates.
D)   decreasing the money supply, which lowers interest rates.E) A) and B)
F) C) and D)

Question 8

If the MPC is 0, then the multiplier is

Accepted Answer

A)   0.
B)   1.
C)   infinite.
D)   None of the above is correct.E) C) and D)
F) B) and C)

Question 9

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)   the Federal Reserve could increase the money supply by buying bonds.
B)   the Federal Reserve could increase the money supply by selling bonds.
C)   the Federal Reserve could decrease the money supply by buying bonds.
D)   the Federal Reserve could decrease the money supply by selling bonds.E) B) and C)
F) All of the above

Question 10

Figure 34-3 
-Refer to Figure 34-3. Which of the following sequences numbered arrows)  shows the logic of the interest-rate effect?

Accepted Answer

A)   1, 2, 3, 4
B)   1, 4, 3, 2
C)   3, 4, 2, 1
D)   3, 2, 1, 4E) B) and C)
F) A) and D)

Question 11

The most important automatic stabilizer is

Accepted Answer

A)   open-market operations.
B)   the tax system.
C)   unemployment compensation.
D)   welfare benefits.E) C) and D)
F) A) and D)

Question 12

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 real interest rate is lower at Y2 than it is at Y1.
B)   the quantity of money is the same at Y1 as it is at Y2.
C)   the price level is lower at r2 than it is at r1.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 13

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand increases.
C)   The price level decreases.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 14

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 15

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) B) and C)
F) A) and C)

Question 16

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that ...

Question 17

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 18

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int...

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Correct Answer
verified

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Correct Answer
verified

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

Correct Answer
verified

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct Answer
verified

Correct Answer
verified

The most important automatic stabilizer is

Correct Answer
verified

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Correct Answer
verified

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

Correct Answer
verified

During periods of expansion, automatic stabilizers cause government expenditures

Correct Answer
verified

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Correct Answer
verified
The increase in expenditures means that ...
View Answer

Correct Answer
verified

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct Answer
verified
When the money supply increases, the int...
View Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct Answer
verified

If the MPC is 0, then the multiplier is

Correct Answer
verified

An increase in the U.S. interest rate

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Correct AnswerverifiedShow Answer

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. Which of the following sequences numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an accelerator effect. If the economy is currently at point A, then an increase in government purchases of $10 will likely increase aggregate demand to point where output is $ .

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most important automatic stabilizer is

Correct AnswerverifiedShow Answer

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During periods of expansion, automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Correct AnswerverifiedThe increase in expenditures means that ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases, the int...View AnswerShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct AnswerverifiedShow Answer

If the MPC is 0, then the multiplier is

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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The increase in expenditures means that ...
View Answer

Correct Answer
verified

Correct Answer
verified
When the money supply increases, the int...
View Answer

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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