Question 1

If the stock market crashes, then

Accepted Answer

A)   aggregate demand decreases, which the Fed could offset by purchasing bonds.
B)   aggregate demand decreases, which the Fed could offset by selling bonds.
C)   aggregate demand increases, which the Fed could offset by selling bonds.
D)   aggregate demand increases, which the Fed could offset by purchasing the money supply.E) C) and D)
F) A) and C)

Question 2

If it were not for the automatic stabilizers in the U.S. economy,

Accepted Answer

A)   the Federal Reserve would have less reason than it has now to monitor stock prices.
B)   it would be more desirable than it is now for the Federal Reserve to target an interest rate.
C)   a strict balanced-budget rule would be more desirable than it is now.
D)   output and employment would probably be more volatile than they are now.E) A) and B)
F) None of the above

Question 3

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 4

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)   the tax increase reduces consumption; the change in the interest rate reduces residential construction
B)   the tax increase reduces consumption; the change in the interest rate raises residential construction
C)   the tax increase raises consumption; the change in the interest rate reduces residential construction
D)   the tax increase raises consumption; the change in the interest rate reduces residential construction.E) B) and C)
F) None of the above

Question 5

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Accepted Answer

A)   the multiplier effect
B)   the crowding-out effect
C)   the accelerator effect
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 6

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 7

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

Question 8

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) A) and D)
F) B) and D)

Question 9

If the price level rises, then

Accepted Answer

A)   the interest rate falls and spending on goods and services falls.
B)   the interest rate falls and spending on goods and services rises.
C)   the interest rate rises and spending on goods and services falls.
D)   the interest rate rises and spending on goods and services rises.E) A) and D)
F) B) and D)

Question 10

Figure 34-7 
-Refer to Figure 34-7. Which of the following is correct?

Accepted Answer

A)   A wave of optimism could move the economy from point a to point b.
B)   If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run.
C)   It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 11

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Accepted Answer

A)   an increase in the money supply and an increase in government purchases.
B)   an increase in the money supply and a decrease in government purchases.
C)   a decrease in the money supply and an increase in government purchases.
D)   a decrease in the money supply and a decrease in government purchases.E) A) and D)
F) C) and D)

Question 12

In the short run, open-market purchases

Accepted Answer

A)   increase investment and real GDP, and decrease nominal interest rates.
B)   increase real GDP and nominal interest rates, and decrease investment.
C)   increase investment and nominal interest rates, and decrease real GDP.
D)   decrease investment, nominal interest rates, and real GDP.E) None of the above
F) A) and D)

Question 13

When taxes increase, the interest rate

Accepted Answer

A)   increases, making the change in aggregate demand larger.
B)   increases, making the change in aggregate demand smaller
C)   decreases, making the change in aggregate demand larger.
D)   decreases, making the change in aggregate demand smaller.E) B) and C)
F) A) and D)

Question 14

Liquidity refers to

Accepted Answer

A)   the relation between the price and interest rate of an asset.
B)   the risk of an asset relative to its selling price.
C)   the ease with which an asset is converted into a medium of exchange.
D)   the sensitivity of investment spending to changes in the interest rate.E) A) and B)
F) None of the above

Question 15

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

Question 16

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

Question 17

If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Accepted Answer

A)   interest rates and investment spending
B)   interest rates, but not investment spending
C)   investment spending, but not interest rates
D)   neither interest rates nor investment spendingE) B) and D)
F) A) and B)

Question 18

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Accepted Answer

A)   the multiplier is probably zero.
B)   the multiplier is probably equal to one.
C)   the multiplier is probably greater than one.
D)   the multiplier is probably less than one.E) A) and B)
F) A) and C)

Question 19

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A)   monetary policy.
B)   crowding out.
C)   the investment accelerator.
D)   the multiplier.E) A) and D)
F) A) and B)

Question 20

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

output, pr...

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

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
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output, pr...
View Answer

When taxes increase, the interest rate

Correct Answer
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Monetary policy

Correct Answer
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If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Correct Answer
verified

In the short run, open-market purchases

Correct Answer
verified

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Correct Answer
verified

Shifts in the aggregate-demand curve can cause fluctuations in

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

An increase in households' desired money holding causes an) _ in interest rates. This causes an) _ in investment spending and aggregate demand.

Correct Answer
verified

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct Answer
verified

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct Answer
verified

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Correct Answer
verified

The idea that expansionary fiscal policy has a positive affect on investment is known as

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

If it were not for the automatic stabilizers in the U.S. economy,

Correct Answer
verified

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct Answer
verified

Correct Answer
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If the price level rises, then

Correct Answer
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Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

Correct Answer
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Liquidity refers to

Correct Answer
verified

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

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Correct Answerverifiedoutput, pr...View AnswerShow Answer

When taxes increase, the interest rate

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases, then which of the following quantities increases) ?

Correct AnswerverifiedShow Answer

In the short run, open-market purchases

Correct AnswerverifiedShow Answer

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

Correct AnswerverifiedShow Answer

Shifts in the aggregate-demand curve can cause fluctuations in

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Correct AnswerverifiedShow Answer

Which of the following are effects of an increase in government spending financed by a tax increase?

Correct AnswerverifiedShow Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then

Correct AnswerverifiedShow Answer

The idea that expansionary fiscal policy has a positive affect on investment is known as

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

If it were not for the automatic stabilizers in the U.S. economy,

Correct AnswerverifiedShow Answer

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the price level rises, then

Correct AnswerverifiedShow Answer

Figure 34-7 -Refer to Figure 34-7. Which of the following is correct?

Correct AnswerverifiedShow Answer

Liquidity refers to

Correct AnswerverifiedShow Answer

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

Correct Answer
verified
output, pr...
View Answer

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An increase in households' desired money holding causes an) _ in interest rates. This causes an) _ in investment spending and aggregate demand.

Correct Answer
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Correct Answer
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Correct 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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