Question 1

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

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

Question 2

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply.
B)  multiplier effect on aggregate demand.
C)  liquidity-enhancing effect on aggregate supply.
D)  liquidity-enhancing effect on aggregate demand.E) None of the above
F) A) and B)

Question 3

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)  An increase in government expenditures decreases the interest rate and so increases investment spending.
B)  An increase in government expenditures increases the interest rate and so reduces investment spending.
C)  A decrease in government expenditures increases the interest rate and so increases investment spending.
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) A) and D)
F) A) and C)

Question 4

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)  The price level rises, causing the interest rate to fall.
B)  The price level falls, causing the interest rate to fall.
C)  The money supply increases, causing the interest rate to fall.
D)  The money supply decreases, causing the interest rate to fall.E) B) and C)
F) None of the above

Question 5

According to the "animal spirits" described by Keynes, when optimism reigns, ​households and firms

Accepted Answer

A)  ​increase spending which results in inflationary pressures.
B)  ​decrease spending which results in deflationary pressures.
C)  ​increase spending which results in deflationary pressures.
D)  ​decrease spending which results in inflationary pressures.E) A) and B)
F) None of the above

Question 6

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A)  Interest rates rise as the Fed reduces the quantity of money demanded.
B)  Interest rates fall as the Fed reduces the supply of money.
C)  People will want to hold less money as the cost of holding it falls.
D)  People will want to hold more money as the cost of holding it falls.E) A) and B)
F) A) and C)

Question 7

When the interest rate decreases, the opportunity cost of holding money

Accepted Answer

A)  increases, so the quantity of money demanded increases.
B)  increases, so the quantity of money demanded decreases.
C)  decreases, so the quantity of money demanded increases.
D)  decreases, so the quantity of money demanded decreases.E) None of the above
F) A) and D)

Question 8

People might withdraw money from interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall, if there is a surplus in the money market.
B)  making the interest rate rise, if there is a surplus in the money market.
C)  making the interest rate fall, if there is a shortage in the money market.
D)  making the interest rate rise, if there is a shortage in the money market.E) A) and C)
F) A) and B)

Question 9

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Accepted Answer

A)  increase taxes
B)  increase the money supply
C)  increase government expenditures
D)  All of the above are correct.E) None of the above
F) All of the above

Question 10

If the MPC is 5/6 then the multiplier is

Accepted Answer

A)  6/5, so a $200 increase in government spending increases aggregate demand by $240.
B)  5, so a $200 increase in government spending increases aggregate supply by $1000.
C)  6, so a $200 increase in government spending increases aggregate demand by $1200.
D)  6/5, so a $200 increase in government spending increases aggregate supply by $1200.E) A) and B)
F) A) and C)

Question 11

The opportunity cost of holding money

Accepted Answer

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

Question 12

According to liquidity preference theory, if the price level

Accepted Answer

A)  fell, the interest rate would rise, and induce investment spending to rise.
B)  fell, the interest rate would fall, and induce investment spending to fall.
C)  rose, the interest rate would rise, and induce investment spending to fall.
D)  rose, the interest rate would fall, and induce investment spending to rise.E) All of the above
F) C) and D)

Question 13

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.
. 2 than it is at Y1. B) the quantity of money is the same at Y1 as it is at Y2. C) the price level is lower at r2 than it is at r1. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" > 2 than it is at Y1. B) the quantity of money is the same at Y1 as it is at Y2. C) the price level is lower at r2 than it is at r1. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A)  the real interest rate is lower at Y2 than it is at Y1.
B)  the quantity of money is the same at Y1 as it is at Y2.
C)  the price level is lower at r2 than it is at r1.
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 14

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 15

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 16

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)  the multiplier effect.
B)  the crowding-out effect.
C)  the Fisher effect.
D)  the wealth effect.E) All of the above
F) A) and D)

Question 17

The G20 countries introduced stimulus packages that averaged ____ of GDP in 2009 and ____ in 2010.​

Accepted Answer

A)  ​2%; 1.6%
B)  ​1.6%; 2%
C)  ​3%; 2%
D)  ​2%; 3%E) None of the above
F) A) and B)

Question 18

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Accepted Answer

A)  $60.25.
B)  $60.75.
C)  $61.33.
D)  $64.00.E) All of the above
F) None of the above

Question 19

​Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Accepted Answer

A)  ​the equilibrium interest rate decreases.
B)  ​the aggregate-demand curve shifts to the left.
C)  ​the quantity of goods and services demanded is unchanged for a given price level.
D)  ​the short-run aggregate-supply curve shifts to the right.E) All of the above
F) B) and C)

Question 20

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Exam 34: 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 4. It follows that, when income is $101, consumer spending is

Correct Answer
verified

If the MPC is 5/6 then the multiplier is

Correct Answer
verified

According to liquidity preference theory, if the price level

Correct Answer
verified

The opportunity cost of holding money

Correct Answer
verified

The G20 countries introduced stimulus packages that averaged of GDP in 2009 and in 2010.

Correct Answer
verified

When the interest rate decreases, the opportunity cost of holding money

Correct Answer
verified

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Correct Answer
verified

According to the "animal spirits" described by Keynes, when optimism reigns, households and firms

Correct Answer
verified

Which of the following correctly explains the crowding-out effect?

Correct Answer
verified

People might withdraw money from interest-bearing accounts,

Correct Answer
verified

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct Answer
verified

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct Answer
verified

Government purchases are said to have a

Correct Answer
verified

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Correct Answer
verified

Correct Answer
verified

In which of the following cases does the aggregate-demand curve shift to the right?

Correct Answer
verified

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Correct Answer
verified

If the MPC is 4/5, the multiplier is 5/4.

Correct Answer
verified

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Correct Answer
verified

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct Answer
verified

Exam 34: 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 4. It follows that, when income is $101, consumer spending is

Correct AnswerverifiedShow Answer

If the MPC is 5/6 then the multiplier is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

The G20 countries introduced stimulus packages that averaged ____ of GDP in 2009 and ____ in 2010.​

Correct AnswerverifiedShow Answer

When the interest rate decreases, the opportunity cost of holding money

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Correct AnswerverifiedShow Answer

According to the "animal spirits" described by Keynes, when optimism reigns, ​households and firms

Correct AnswerverifiedShow Answer

Which of the following correctly explains the crowding-out effect?

Correct AnswerverifiedShow Answer

People might withdraw money from interest-bearing accounts,

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Correct AnswerverifiedShow Answer

Government purchases are said to have a

Correct AnswerverifiedShow Answer

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

​Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Correct AnswerverifiedShow Answer

If the MPC is 4/5, the multiplier is 5/4.

Correct AnswerverifiedShow Answer

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
verified

The G20 countries introduced stimulus packages that averaged of GDP in 2009 and in 2010.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

According to the "animal spirits" described by Keynes, when optimism reigns, households and firms

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Using the liquidity-preference model, when the Federal Reserve increases the money supply,

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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