Question 1

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Accepted Answer

The wealth effect and the exchange-rate ...

Question 2

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 3

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that ...

Question 4

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 5

Other things equal, the higher the price level, the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 6

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Accepted Answer

The answer of When the Federal Funds rate is above...

Question 7

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 Hair City chain of hair salons decides to build fewer new salons.
B)  An increase in government expenditures increases aggregate spending so that Hair City finds it profitable to build more new salons.
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Hair City increases.
D)  An increase in government expenditures decreases the interest rate so that Hair City decides to build more new salons.E) B) and D)
F) B) and C)

Question 8

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium.
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium.
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.E) None of the above
F) B) and C)

Question 9

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)  the MPC is large and if the tax cut is permanent.
B)  the MPC is large and if the tax cut is temporary.
C)  the MPC is small and if the tax cut is permanent.
D)  the MPC is small and if the tax cut is temporary.E) B) and C)
F) A) and D)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 12

Figure 34-11  ​
-Refer to Figure 34-11. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-11  ​
-Refer to Figure 34-11....

Question 13

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

government...

Question 15

Suppose an economy's marginal propensity to consume (MPC)  is 0.6. Then 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of

Accepted Answer

A)  1.96.
B)  3.
C)  1.67.
D)  2.5.E) None of the above
F) All of the above

Question 16

An increase in the money supply shifts the aggregate-supply curve to the right.

Accepted Answer

A) True 
 B)False

Question 17

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor...

Question 18

An increase in taxes shifts the aggregate _____ curve to the _____.

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 19

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)  An increase in government expenditures or a decrease in the price level
B)  A decrease in government expenditures or an increase in the price level
C)  An increase in government expenditures, but not a change in the price level
D)  A decrease in the price level, but not a change in government expendituresE) B) and C)
F) A) and D)

Question 20

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following events shifts aggregate demand rightward?

Correct AnswerverifiedShow Answer

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

Correct AnswerverifiedThe wealth effect and the exchange-rate ...View AnswerShow Answer

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of

Correct AnswerverifiedShow Answer

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

Correct AnswerverifiedShow Answer

An essential piece of the liquidity preference theory is the demand for money.

Correct AnswerverifiedShow Answer

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedgovernment...View AnswerShow Answer

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Correct AnswerverifiedThe increase in expenditures means that ...View AnswerShow Answer

Other things equal, the higher the price level, the higher is the real wealth of households.

Correct AnswerverifiedShow Answer

Which of the following illustrates how the investment accelerator works?

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

Explain how unemployment insurance acts as an automatic stabilizer.

Correct AnswerverifiedAs income falls, unemployment rises. Mor...View AnswerShow Answer

An increase in the money supply shifts the aggregate-supply curve to the right.

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if there were a surplus of money, then

Correct AnswerverifiedShow Answer

An increase in taxes shifts the aggregate _____ curve to the _____.

Correct AnswerverifiedShow Answer

Figure 34-11 ​ -Refer to Figure 34-11. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The wealth effect and the exchange-rate ...
View Answer

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then 1 + MPC + MPC² + MPC³ = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of

Correct Answer
verified

When the Federal Funds rate is above the Federal Reserve's target, it will bonds to _ the money supply.

Correct Answer
verified

Correct Answer
verified

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

Correct Answer
verified

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

Correct Answer
verified
government...
View Answer

Correct Answer
verified
The increase in expenditures means that ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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As income falls, unemployment rises. Mor...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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An increase in taxes shifts the aggregate _ curve to the _.

Correct Answer
verified

Figure 34-11 -Refer to Figure 34-11. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Correct Answer
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