Question 1

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) None of the above
F) All of the above

Question 2

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) A) and B)
F) None of the above

Question 3

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither crowding out nor the investment acceleratorE) None of the above
F) A) and D)

Question 5

If taxes

Accepted Answer

A)   increase, then consumption increases, and aggregate demand shifts leftward.
B)   increase, then consumption decreases, and aggregate demand shifts rightward.
C)   decrease, then consumption increases, and aggregate demand shifts rightward.
D)   decrease, then consumption decreases, and aggregate demand shifts leftward.E) A) and B)
F) A) and C)

Question 6

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, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?

Accepted Answer

A)   When r = r2, nominal output is higher than it is when r = r1.
B)   When r = r2, real output is higher than it is when r = r1.
C)   When r = r2, the expected rate of inflation is higher than it is when r = r1.
D)   If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.E) All of the above
F) A) and C)

Question 7

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) C) and D)
F) B) and D)

Question 8

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)   monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)   monetary policy can be described either in terms of the exchange rate or the interest rate.
C)   monetary policy must be described in terms of the money supply.
D)   monetary policy must be described in terms of the interest rate.E) All of the above
F) A) and D)

Question 9

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

increase t...

Question 10

Because the liquidity-preference framework focuses on the

Accepted Answer

A)   short run, it assumes the price level adjusts to bring the money market to equilibrium.
B)   short run, it assumes the interest rate adjusts to bring the money market to equilibrium.
C)   long run, it assumes the price level adjusts to bring the money market to equilibrium.
D)   long run, it assumes the interest rate adjusts to bring the money market to equilibrium.E) All of the above
F) A) and D)

Question 11

To reduce aggregate demand, the government may reduce or increase .

Accepted Answer

government...

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) A) and D)
F) B) and D)

Question 14

Supply-side economists focus more than other economists on

Accepted Answer

A)   how fiscal policy affects consumption.
B)   the multiplier effect of fiscal policy.
C)   how fiscal policy affects aggregate supply.
D)   the money supply.E) B) and D)
F) None of the above

Question 15

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

Question 16

Which of the following statements is correct for the short run?

Accepted Answer

A)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B)   Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; the price level is relatively slow to adjust.
D)   Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.E) A) and C)
F) A) and B)

Question 17

If there is excess demand for money, then people will

Accepted Answer

A)   deposit more money into interest-bearing accounts, and the interest rate will fall.
B)   deposit more money into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) A) and B)
F) B) and D)

Question 18

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)   liquidity preference.
B)   liquidity trap.
C)   open-market trap.
D)   interest-rate contraction.E) All of the above
F) None of the above

Question 19

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 20

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

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

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct Answer
verified

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct Answer
verified

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct Answer
verified

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct Answer
verified

Because the liquidity-preference framework focuses on the

Correct Answer
verified

If taxes

Correct Answer
verified

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

Correct Answer
verified

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Correct Answer
verified

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Correct Answer
verified
increase t...
View Answer

The theory of liquidity preference illustrates the principle that

Correct Answer
verified

Which of the following events would shift money demand to the left?

Correct Answer
verified

Which of the following statements is correct for the short run?

Correct Answer
verified

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

Correct Answer
verified

To reduce aggregate demand, the government may reduce or increase .

Correct Answer
verified
government...
View Answer

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Correct Answer
verified

Which of the following effects results from the change in the interest rate created by an increase in government spending?

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

Correct Answer
verified

If there is excess demand for money, then people will

Correct Answer
verified

Supply-side economists focus more than other economists on

Correct Answer
verified

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

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Correct AnswerverifiedShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

Because the liquidity-preference framework focuses on the

Correct AnswerverifiedShow Answer

If taxes

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Correct AnswerverifiedShow Answer

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifiedincrease t...View AnswerShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

Which of the following statements is correct for the short run?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To reduce aggregate demand, the government may reduce or increase .

Correct Answerverifiedgovernment...View AnswerShow Answer

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Correct AnswerverifiedShow Answer

Which of the following effects results from the change in the interest rate created by an increase in government spending?

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

Correct AnswerverifiedShow Answer

If there is excess demand for money, then people will

Correct AnswerverifiedShow Answer

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

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increase t...
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government...
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