Question 1

Which of the following lists of events is consistent with the long-run theories studied?

Accepted Answer

A)  In the long run, output responds to the aggregate demand and supply of goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.
B)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
C)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.
D)  In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.E) B) and C)
F) A) and D)

Question 2

Which of the following is NOT an automatic stabilizer?

Accepted Answer

A)  the minimum wage
B)  the unemployment compensation system
C)  the federal income tax
D)  the welfare systemE) All of the above
F) A) and D)

Question 3

According to the theory of liquidity preference,how is the money supply affected by the interest rate?

Accepted Answer

A)  positively
B)  negatively
C)  not affected
D)  directlyE) B) and C)
F) A) and B)

Question 4

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

Accepted Answer

A)  People will sell interest-bearing assets, causing the interest rate to decrease.
B)  People will sell interest-bearing assets, causing the interest rate to increase.
C)  People will buy interest-bearing assets, causing the interest rate to decrease.
D)  People will buy interest-bearing assets, causing the interest rate to increase.E) B) and D)
F) C) and D)

Question 5

Which of the following terms refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

Accepted Answer

A)  the multiplier effect
B)  the crowding-out effect
C)  the accelerator effect
D)  the Ricardian equivalence effectE) A) and D)
F) C) and D)

Question 6

Suppose that the MPC is 0.5 and there is no investment accelerator or crowding-out effects.If government expenditures increase by $20 billion,what happens to aggregate demand?

Accepted Answer

A)  It shifts right by $20 billion.
B)  It shifts left by $20 billion.
C)  It shifts right by $40 billion.
D)  It shifts left by $40 billion.E) A) and B)
F) A) and C)

Question 7

According to liquidity-preference theory,other things being equal,a higher price level leads households to do which of the following in the short run?

Accepted Answer

A)  increase consumption
B)  decrease the amount of cash they want to hold
C)  buy bonds
D)  decrease consumptionE) All of the above
F) B) and C)

Question 8

How do permanent tax cuts shift the AD curve compared with temporary tax results?

Accepted Answer

A)  Permanent tax cuts shift the AD curve farther to the right than temporary tax cuts do.
B)  Permanent tax cuts shift the AD curve less to the right than temporary tax cuts do.
C)  Permanent tax cuts shift the AD curve farther to the left than temporary tax cuts do.
D)  Permanent tax cuts shift the AD curve less to the left than temporary tax cuts do.E) A) and C)
F) None of the above

Question 9

For the Canadian economy,which of the following is the LEAST important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A)  the wealth effect
B)  the interest-rate effect
C)  the exchange-rate effect
D)  the real-wage effectE) C) and D)
F) B) and D)

Question 10

If the multiplier is 4,what is the MPC?

Accepted Answer

A)  0.25
B)  0.50
C)  0.75
D)  1.00E) None of the above
F) A) and D)

Question 11

What do supply-side economists focus more on than other economists?

Accepted Answer

A)  how fiscal policy affects consumption
B)  the multiplier effect of fiscal policy
C)  how fiscal policy affects aggregate supply
D)  the accelerator and exchange-rate effectsE) A) and D)
F) None of the above

Question 12

Which of the following is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

Accepted Answer

A)  It would shift the aggregate-demand curve to the left.
B)  It would shift the long-run aggregate-supply curve to the left. .
C)  It would shift the short-run aggregate-supply curve to the left.
D)  It would shift the long run aggregate-supply curve to the right.E) B) and D)
F) C) and D)

Question 13

Figure 15-1
 
-Refer to the Figure 15-1.At which of the following interest rates is there an excess money demand?

Accepted Answer

A)  2 percent
B)  3 percent
C)  4 percent
D)  5 percentE) C) and D)
F) All of the above

Question 14

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Sleepwell Hotel chain decides to build fewer new hotels.
B)  An increase in government expenditures increases aggregate spending so that the Sleepwell Hotel chain finds it profitable to build more new hotels.
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by the Sleepwell Hotel chain rises.
D)  An increase in government expenditures decreases the interest rate so that the Sleepwell Hotel chain decides to build more new hotels.E) A) and C)
F) None of the above

Question 15

Use the money market to explain why the aggregate demand curve slopes downward.

Accepted Answer

When the price level falls,people need l...

Question 16

How does an increase in the interest rate affect the demand for goods and services?

Accepted Answer

A)  It increases the cost of borrowing and people consume more.
B)  It decreases the cost of borrowing and people consume more.
C)  It increases the cost of borrowing and people consume less.
D)  It decreases the cost of borrowing and people consume less.E) B) and C)
F) A) and C)

Question 17

Assume that the MPC is 0.8.What is the multiplier?

Accepted Answer

A)  .20
B)  .25
C)  5
D)  8E) A) and B)
F) All of the above

Question 18

Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?

Accepted Answer

A)  decreasing the money supply
B)  increasing government expenditures
C)  increasing taxes
D)  reducing the government deficitE) A) and B)
F) All of the above

Question 19

When does the opportunity cost of holding money decrease or increase,and how does people's desire to hold money change?

Accepted Answer

A)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold more money.
B)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold less money.
C)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold more money.
D)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold less money.E) B) and C)
F) A) and B)

Question 20

Which of the following statements do opponents of active stabilization policy believe?

Accepted Answer

A)  A monetary policy designed to offset changes in the unemployment rate is effective.
B)  Fiscal policy is unable to change aggregate demand or aggregate supply.
C)  The political process creates lags in the implementation of fiscal policy.
D)  Fluctuations would not exist in the absence of fiscal policies.E) A) and B)
F) B) and C)

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Assume that the MPC is 0.8.What is the multiplier?

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If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

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Figure 15-1 -Refer to the Figure 15-1.At which of the following interest rates is there an excess money demand?

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Which of the following is NOT an automatic stabilizer?

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For the Canadian economy,which of the following is the LEAST important reason for the downward slope of the aggregate-demand curve?

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Suppose that the MPC is 0.5 and there is no investment accelerator or crowding-out effects.If government expenditures increase by $20 billion,what happens to aggregate demand?

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Which of the following is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

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How does an increase in the interest rate affect the demand for goods and services?

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How do permanent tax cuts shift the AD curve compared with temporary tax results?

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If the multiplier is 4,what is the MPC?

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Which of the following statements do opponents of active stabilization policy believe?

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Which of the following lists of events is consistent with the long-run theories studied?

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When does the opportunity cost of holding money decrease or increase,and how does people's desire to hold money change?

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What do supply-side economists focus more on than other economists?

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According to the theory of liquidity preference,how is the money supply affected by the interest rate?

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Which of the following illustrates how the investment accelerator works?

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Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?

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Use the money market to explain why the aggregate demand curve slopes downward.

Correct AnswerverifiedWhen the price level falls,people need l...View AnswerShow Answer

According to liquidity-preference theory,other things being equal,a higher price level leads households to do which of the following in the short run?

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Which of the following terms refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

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When the price level falls,people need l...
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