Question 1

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

Question 2

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Accepted Answer

A)   $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.
B)   $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand.
C)   $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.
D)   $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand.E) A) and D)
F) None of the above

Question 3

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) A) and C)
F) C) and D)

Question 4

In the long run, fiscal policy primarily affects

Accepted Answer

A)   aggregate demand. In the short run, it affects primarily aggregate supply.
B)   aggregate supply. In the short run, it affects primarily saving, investment, and growth.
C)   saving, investment, and growth. In the short run, it affects primarily aggregate demand.
D)   saving, investment, and growth. In the short run, it affects primarily aggregate supply.E) None of the above
F) All of the above

Question 5

The Employment Act of 1946

Accepted Answer

A)   implies that the government should avoid being a cause of economic fluctuations.
B)   implies that the government should respond to changes in the private economy to stabilize aggregate demand.
C)   reflected the ideas promoted in Keynes's influential book, The General Theory of Employment, Interest, and Money.
D)   All of the above are correctE) A) and B)
F) C) and D)

Question 6

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)   rightward. In an attempt to stabilize the economy, the government could raise taxes.
B)   rightward. In an attempt to stabilize the economy, the government could cut taxes.
C)   leftward. In an attempt to stabilize the economy, the government could raise taxes.
D)   leftward. In an attempt to stabilize the economy, the government could cut taxes.E) A) and C)
F) B) and D)

Question 7

During recessions, taxes tend to

Accepted Answer

A)   rise and thereby increase aggregate demand.
B)   rise and thereby decrease aggregate demand.
C)   fall and thereby increase aggregate demand.
D)   fall and thereby decrease aggregate demand.E) A) and B)
F) B) and D)

Question 8

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)   $300 billion and $180 billion
B)   $300 billion and $300 billion
C)   $500 billion and $300 billion
D)   $500 billion and $500 billionE) A) and D)
F) C) and D)

Question 9

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Accepted Answer

A)   the interest rate to fall, so aggregate demand shifts right.
B)   the interest rate to fall, so aggregate demand shifts left.
C)   the interest rate to rise, so aggregate demand shifts right.
D)   the interest rate to rise, so aggregate demand shifts left.E) All of the above
F) C) and D)

Question 10

Figure 16-4. On the figure, MS represents money supply and MD represents money demand.
 3. Which of the following events would cause the equilibrium interest rate to decrease? A)  The Federal Reserve increases the money supply. B)  Money demand decreases. C)  The price level decreases. D)  All of the above are correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 16-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)   The Federal Reserve increases the money supply.
B)   Money demand decreases.
C)   The price level decreases.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 11

Monetary policy

Accepted Answer

A)   must be described in terms of interest-rate targets.
B)   must be described in terms of money-supply targets.
C)   can be described either in terms of the money supply or in terms of the interest rate.
D)   cannot be accurately described in terms of the interest rate or in terms of the money supply.E) A) and B)
F) B) and C)

Question 12

Fiscal policy affects the economy

Accepted Answer

A)   only in the short run.
B)   only in the long run.
C)   in both the short and long run.
D)   in neither the short nor the long run.E) B) and D)
F) A) and D)

Question 13

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

A)   a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
B)   a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero.
C)   a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
D)   while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.E) A) and B)
F) C) and D)

Question 14

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect, but not the crowding-out effect
C)   the crowding-out effect, but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) A) and B)
F) None of the above

Question 15

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 an 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) None of the above

Question 16

The logic of the multiplier effect applies

Accepted Answer

A)   only to changes in government spending.
B)   to any change in spending on any component of GDP.
C)   only to changes in the money supply.
D)   only when the crowding-out effect is sufficiently strong.E) A) and B)
F) All of the above

Question 17

Scenario 16-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $5,200 when income is $8,000.
• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 16-2. The multiplier for this economy is

Accepted Answer

A)   6.00.
B)   6.25.
C)   8.40
D)   9.00.E) None of the above
F) A) and D)

Question 18

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 19

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) B) and C)
F) A) and D)

Question 20

Figure 16-1
 
-Refer to Figure 16-1. If the current interest rate is 2 percent,

Accepted Answer

A)   there is an excess supply of money.
B)   people will sell more bonds, which drives interest rates up.
C)   as the money market moves to equilibrium, people will buy more goods.
D)   All of the above are correct.E) B) and C)
F) A) and B)

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

In the long run, fiscal policy primarily affects

Correct Answer
verified

A reduction in U.S net exports would shift U.S. aggregate demand

Correct Answer
verified

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease?

Correct Answer
verified

Fiscal policy affects the economy

Correct Answer
verified

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct Answer
verified

Figure 16-1 -Refer to Figure 16-1. If the current interest rate is 2 percent,

Correct Answer
verified

The Employment Act of 1946

Correct Answer
verified

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct Answer
verified

Scenario 16-2. The following facts apply to a small, imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 16-2. The multiplier for this economy is

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

Because the liquidity-preference framework focuses on the

Correct Answer
verified

During recessions, taxes tend to

Correct Answer
verified

Monetary policy

Correct Answer
verified

Economists who are skeptical about the relevance of "liquidity traps" argue that

Correct Answer
verified

In the short run,

Correct Answer
verified

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Correct Answer
verified

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified

The logic of the multiplier effect applies

Correct Answer
verified

Correct Answer
verified

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Correct Answer
verified

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

In the long run, fiscal policy primarily affects

Correct AnswerverifiedShow Answer

A reduction in U.S net exports would shift U.S. aggregate demand

Correct AnswerverifiedShow Answer

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the current equilibrium interest rate is r3. Which of the following events would cause the equilibrium interest rate to decrease?

Correct AnswerverifiedShow Answer

Fiscal policy affects the economy

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

Correct AnswerverifiedShow Answer

Figure 16-1 -Refer to Figure 16-1. If the current interest rate is 2 percent,

Correct AnswerverifiedShow Answer

The Employment Act of 1946

Correct AnswerverifiedShow Answer

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct AnswerverifiedShow Answer

Scenario 16-2. The following facts apply to a small, imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 16-2. The multiplier for this economy is

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

Because the liquidity-preference framework focuses on the

Correct AnswerverifiedShow Answer

During recessions, taxes tend to

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

Economists who are skeptical about the relevance of "liquidity traps" argue that

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Correct AnswerverifiedShow Answer

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedShow Answer

The logic of the multiplier effect applies

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease?

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

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