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) None of the above
F) All of the above

Question 2

If the Fed conducts open-market sales, the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) B) and C)
F) None of the above

Question 3

Figure 34-13 
-Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Accepted Answer

The answer of Figure 34-13 
-Refer to Figure 34-13. The...

Question 4

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

Question 5

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)   the interest rate on bonds.
B)   the inflation rate.
C)   the cost of converting bonds to a medium of exchange.
D)   the difference between the inflation rate and the interest rate on bonds.E) A) and B)
F) A) and C)

Question 6

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) B) and C)
F) A) and C)

Question 7

Other things the same, a decrease in the U.S. interest rate

Accepted Answer

A)   induces firms to invest more.
B)   shifts money demand to the left.
C)   makes the U.S. dollar appreciate.
D)   increases the opportunity cost of holding dollars.E) C) and D)
F) B) and C)

Question 8

Which of the following is an example of an increase in government purchases?

Accepted Answer

A)   The government builds new roads.
B)   The Federal Reserve purchases government bonds.
C)   The government decreases personal income taxes.
D)   The government increases unemployment insurance benefit payments.E) B) and C)
F) A) and B)

Question 9

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. As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)   the price level is held fixed at P1.
B)   the interest rate is held fixed at r1.
C)   the money supply is changing so as to keep the money market in equilibrium.
D)   the expected inflation rate is changing so as to keep the real interest rate constant.E) B) and D)
F) A) and C)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)   shift aggregate demand right by a larger amount than the increase in government expenditures.
B)   shift aggregate demand right by the same amount as the increase in government expenditures.
C)   shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)   Any of the above outcomes are possible.E) B) and D)
F) All of the above

Question 13

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) A) and B)
F) B) and C)

Question 14

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 15

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by about $30.77 billion.
B)   left by about $57.1 billion.
C)   right by about $57.1 billion.
D)   right by about $30.77 billion.E) All of the above
F) A) and D)

Question 16

Paul Samuelson, a famous economist, said that

Accepted Answer

A)   "the bond market has predicted zero out of the past nine recessions."
B)   "the stock market has predicted zero out of the past nine recessions."
C)   "the bond market has predicted nine out of the past five recessions."
D)   "the stock market has predicted nine out of the past five recessions."E) A) and B)
F) All of the above

Question 17

An increase in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so investment spending decreases.
C)   decreases the interest rate and so increases investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) A) and D)
F) A) and C)

Question 18

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 C)
F) A) and B)

Question 19

Keynes argued that aggregate demand is

Accepted Answer

A)   stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand.
B)   stable, because changes in consumption are mostly offset by changes in investment and vice versa.
C)   unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.
D)   unstable, because of long and variable policy lags that worsen economic fluctuations.E) B) and D)
F) B) and C)

Question 20

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Accepted Answer

A)   right by $130 billion.
B)   right by $70 billion.
C)   right by $50 billion.
D)   right by $10 billion.E) A) and B)
F) B) and C)

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

Keynes argued that aggregate demand is

Correct Answer
verified

According to liquidity preference theory, the opportunity cost of holding money is

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

An increase in government spending

Correct Answer
verified

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

Correct Answer
verified

Which of the following is an example of an increase in government purchases?

Correct Answer
verified

Correct Answer
verified

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Correct Answer
verified

Paul Samuelson, a famous economist, said that

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

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct Answer
verified

Other things the same, a decrease in the U.S. interest rate

Correct Answer
verified

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.

Correct Answer
verified

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

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

Correct Answer
verified

If the Fed conducts open-market sales, the money supply

Correct Answer
verified

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct Answer
verified

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

Keynes argued that aggregate demand is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

An increase in government spending

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an example of an increase in government purchases?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the MPC is 0.65. Assuming only the multiplier effect matters, a decrease in government purchases of $20 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

Paul Samuelson, a famous economist, said that

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

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the U.S. interest rate

Correct AnswerverifiedShow Answer

Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _____ bonds, which causes interest rates to _____.

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales, the money supply

Correct AnswerverifiedShow Answer

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

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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Figure 34-13 -Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the Federal Reserve will _ bonds, which causes interest rates to _.

Correct Answer
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