Question 1

Figure 24-2.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.
 1 = 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? When P = P2, A)  investment is lower than it is when P = P1. B)  nominal output is higher than it is when P = P1. C)  the expected rate of inflation is higher than it is when P = P1. D)  the velocity of money is higher than it is when P = P1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 24-2.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? When P = P2,

Accepted Answer

A)   investment is lower than it is when P = P1.
B)   nominal output is higher than it is when P = P1.
C)   the expected rate of inflation is higher than it is when P = P1.
D)   the velocity of money is higher than it is when P = P1.E) None of the above
F) A) and B)

Question 2

Which of the following statements is correct for the long 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 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 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 D)
F) None of the above

Question 3

Figure 24-3. 
-Refer to Figure 24-3.What quantity is represented by the vertical line on the left-hand graph?

Accepted Answer

A)   the supply of money
B)   the demand for money
C)   the rate of inflation
D)   the quantity of bonds that was most recently sold or purchased by the Federal ReserveE) All of the above
F) A) and B)

Question 4

In which of the following cases would the quantity of money demanded be smallest?

Accepted Answer

A)   r = 0.06,P = 1.2
B)   r = 0.05,P = 1.0
C)   r = 0.04,P = 1.2
D)   r = 0.06,P = 1.0E) A) and B)
F) All of the above

Question 5

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Accepted Answer

A)   increase the money supply by buying bonds.
B)   increase the money supply by selling bonds.
C)   decrease the money supply by buying bonds
D)   increase the money supply by selling bondsE) A) and B)
F) A) and C)

Question 6

Other things the same,as the price level rises,

Accepted Answer

A)   the interest rate rises causing aggregate demand to shift.
B)   the interest rate rises causing a movement along a given aggregate-demand curve.
C)   the interest rate falls causing aggregate demand to shift.
D)   the interest rate falls causing a movement along a given aggregate-demand curve.E) A) and B)
F) None of the above

Question 7

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Accepted Answer

A)   $60.60.
B)   $60.67.
C)   $61.33.
D)   $63.00.E) B) and C)
F) None of the above

Question 8

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) C) and D)
F) B) and C)

Question 9

When Congress reduces spending in order to balance the government's budget,it needs to consider

Accepted Answer

A)   both the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth.
B)   only the short-run effects on aggregate demand and aggregate supply.
C)   only the long-run effects on saving and growth.
D)   only the long-run effects on aggregate demand and aggregate supply.E) B) and C)
F) None of the above

Question 10

If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 11

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

Accepted Answer

A)   By themselves,both the change in output and the change in the interest rate increase desired investment.
B)   By themselves,both the change in output and the change in the interest rate decrease desired investment.
C)   By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
D)   By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.E) C) and D)
F) All of the above

Question 12

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 13

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

Question 14

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)   the MPC is small and changes in the interest rate have a small effect on investment
B)   the MPC is small and changes in the interest rate have a large effect on investment
C)   the MPC is large and changes in the interest rate have a small effect on investment
D)   the MPC is large and changes in the interest rate have a large effect on investmentE) None of the above
F) A) and D)

Question 15

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...

Question 16

Figure 24-3. 
-Refer to Figure 24-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Accepted Answer

A)   1,2,3,4
B)   1,4,3,2
C)   3,4,2,1
D)   3,2,1,4E) A) and D)
F) C) and D)

Question 17

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) B) and D)
F) B) and C)

Question 18

People will want to hold less money if the price level

Accepted Answer

A)   increases or if the interest rate increases.
B)   decreases or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) All of the above
F) None of the above

Question 19

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1...

Question 20

A decrease in the interest rate could have been caused by the money-demand curve shifting

Accepted Answer

A)   leftward because the price level fell.
B)   leftward because the price level rose
C)   rightward because the price level fell.
D)   rightward because the price level rose.E) A) and C)
F) None of the above

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Correct Answer
verified

Supply-side economists believe that a reduction in the tax rate

Correct Answer
verified

In which of the following cases would the quantity of money demanded be smallest?

Correct Answer
verified

Which of the following shifts aggregate demand to the left?

Correct Answer
verified

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct Answer
verified
The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...
View Answer

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

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

Correct Answer
verified

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct Answer
verified

A decrease in the interest rate could have been caused by the money-demand curve shifting

Correct Answer
verified

When Congress reduces spending in order to balance the government's budget,it needs to consider

Correct Answer
verified

People will want to hold less money if the price level

Correct Answer
verified

If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct Answer
verified

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct Answer
verified
An MPC of .9 means the multiplier = 1/(1...
View Answer

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct Answer
verified

Correct Answer
verified

Figure 24-3. -Refer to Figure 24-3.What quantity is represented by the vertical line on the left-hand graph?

Correct Answer
verified

Other things the same,as the price level rises,

Correct Answer
verified

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

Correct Answer
verified

Figure 24-3. -Refer to Figure 24-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct Answer
verified

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be smallest?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

Correct AnswerverifiedThe multiplier is 1/(1-MPC)= 1/(1-.8)= 1...View AnswerShow Answer

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

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

Correct AnswerverifiedShow Answer

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

A decrease in the interest rate could have been caused by the money-demand curve shifting

Correct AnswerverifiedShow Answer

When Congress reduces spending in order to balance the government's budget,it needs to consider

Correct AnswerverifiedShow Answer

People will want to hold less money if the price level

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct AnswerverifiedShow Answer

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Correct AnswerverifiedAn MPC of .9 means the multiplier = 1/(1...View AnswerShow Answer

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 24-3. -Refer to Figure 24-3.What quantity is represented by the vertical line on the left-hand graph?

Correct AnswerverifiedShow Answer

Other things the same,as the price level rises,

Correct AnswerverifiedShow Answer

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

Correct AnswerverifiedShow Answer

Figure 24-3. -Refer to Figure 24-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified
The multiplier is 1/(1-MPC)= 1/(1-.8)= 1...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An MPC of .9 means the multiplier = 1/(1...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified