Question 1

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

Question 2

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  1/(1+MP
C)  .
B)  (1 - MP
C)  /MPC.
C)  1/MPC.
D)  1/(1 - MP
C)  .E) All of the above
F) A) and B)

Question 3

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) All of the above
F) None of the above

Question 4

During recessions, taxes tend to

Accepted Answer

A)  rise and thereby increase aggregate demand.
B)  rise and thereby decrease aggregate demand.
C)  fall and thereby increase aggregate demand.
D)  fall and thereby decrease aggregate demand.E) B) and C)
F) A) and B)

Question 5

If the multiplier is 6, then the MPC is

Accepted Answer

A)  0.16.
B)  0.83.
C)  0.71.
D)  0.86.E) None of the above
F) A) and D)

Question 6

In recent years, the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)  bank reserves.
B)  the monetary growth rate.
C)  the exchange rate.
D)  the federal funds rate.E) C) and D)
F) None of the above

Question 7

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

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

Question 8

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A)  people want to hold more money. This response is shown by moving to the right along the money demand curve.
B)  people want to hold more money. This response is shown by shifting the money demand curve right.
C)  people want to hold less money. This response is shown by moving to the left along the money demand curve.
D)  people want to hold less money. This response is shown by shifting the money demand curve left.E) B) and C)
F) A) and D)

Question 9

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 10

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Accepted Answer

increases,...

Question 11

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory.
B)  neither liquidity preference theory nor classical theory.
C)  liquidity preference theory, but not classical theory.
D)  classical theory, but not liquidity preference theory.E) B) and D)
F) None of the above

Question 12

Figure 34-11 
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

Accepted Answer

government...

Question 13

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. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.64.
B)  0.83.
C)  0.56.
D)  0.840.E) B) and D)
F) B) and C)

Question 14

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  As the money supply increases, the interest rate falls, so spending rises.
B)  As the money supply increases, the interest rate rises, so spending falls.
C)  As the price level increases, the interest rate falls, so spending rises.
D)  As the price level increases, the interest rate rises, so spending falls.E) All of the above
F) B) and D)

Question 15

When the Fed decreases the money supply, we expect

Accepted Answer

A)  interest rates and stock prices to rise.
B)  interest rates and stock prices to fall.
C)  interest rates to rise and stock prices to fall.
D)  interest rates to fall and stock prices to rise.E) All of the above
F) C) and D)

Question 16

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 2 to MD1 is consistent with which of the following sets of events? A) The government cuts taxes, resulting in an increase in people's incomes. B) The government reduces government spending, resulting in a decrease in people's incomes. C) The Federal Reserve increases the supply of money, which decreases the interest rate. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)  The government cuts taxes, resulting in an increase in people's incomes.
B)  The government reduces government spending, resulting in a decrease in people's incomes.
C)  The Federal Reserve increases the supply of money, which decreases the interest rate.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 18

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

Question 19

A tax cut shifts aggregate demand

Accepted Answer

A)  by more than the amount of the tax cut.
B)  by the same amount as the tax cut.
C)  by less than the tax cut.
D)  None of the above is necessarily correct.E) A) and D)
F) A) and C)

Question 20

The interest-rate effect

Accepted Answer

A)  depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.
B)  depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded.
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) B) and D)
F) None of the above

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

The multiplier for changes in government spending is calculated as

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When the Fed decreases the money supply, we expect

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A tax cut shifts aggregate demand

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Monetary policy and fiscal policy are the only factors that influence aggregate demand.

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The interest-rate effect

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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. The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

The Employment Act of 1946 states that

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if the interest rate rises

Correct AnswerverifiedShow Answer

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

Correct Answerverifiedgovernment...View AnswerShow Answer

If the multiplier is 6, then the MPC is

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If the MPC is 0, then the multiplier is

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The ease with which an asset can be converted into the medium of exchange is known as _____.

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for

Correct AnswerverifiedShow Answer

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct AnswerverifiedShow Answer

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

As the interest rate falls,

Correct AnswerverifiedShow Answer

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed would

Correct AnswerverifiedShow Answer

During recessions, taxes tend to

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Correct Answerverifiedincreases,...View AnswerShow Answer

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Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce _ and/or increase _.

Correct Answer
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government...
View Answer

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Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Correct Answer
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When the Federal Reserve conducts an open-market purchase, the money supply _ and aggregate demand _.

Correct Answer
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increases,...
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