Question 1

People might deposit more money into 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) All of the above
F) B) and C)

Question 2

According to the theory of liquidity preference, the money supply

Accepted Answer

A)  and money demand are positively related to the interest rate.
B)  and money demand are negatively related to the interest rate.
C)  is negatively related to the interest rate while money demand is positively related to the interest rate.
D)  is independent of the interest rate, while money demand is negatively related to the interest rate.E) A) and B)
F) A) and D)

Question 3

Figure 21-3. 
-Refer to Figure 21-3. 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 B)
F) A) and C)

Question 4

During periods of expansion, automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall.
B)  and taxes to rise.
C)  to rise and taxes to fall.
D)  to fall and taxes to rise.E) C) and D)
F) A) and C)

Question 5

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)  "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent."
B)  "Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount."
C)  "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent."
D)  "Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent."E) A) and B)
F) A) and C)

Question 6

If the multiplier is 6.25, then the MPC is

Accepted Answer

A)  0.2.
B)  0.6.
C)  0.75.
D)  0.84.E) A) and B)
F) None of the above

Question 7

In the short run, a decrease in the money supply causes interest rates to

Accepted Answer

A)  increase, and aggregate demand to shift right.
B)  increase, and aggregate demand to shift left.
C)  decrease, and aggregate demand to shift right.
D)  decrease, and aggregate demand to shift left.E) C) and D)
F) A) and C)

Question 8

Changes in the interest rate

Accepted Answer

A)  shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
B)  shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy.
C)  shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.
D)  do not shift aggregate demand.E) B) and D)
F) None of the above

Question 9

Which of the following statements is correct for the short 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 responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; 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 B)
F) B) and C)

Question 10

Supply-side economists focus more than other economists on

Accepted Answer

A)  how fiscal policy affects consumption.
B)  the multiplier affect of fiscal policy.
C)  how fiscal policy affects aggregate supply.
D)  the money supply.E) A) and C)
F) A) and B)

Question 11

Scenario 21-1. Take the following information as given for a small, imaginary economy:
 - When income is  $10,000\$ 10,000$10,000 , consingtion spending is  $6,500\$ 6,500$6,500 
- Whan income is  $11,000\$ 11,000$11,000 , cansumption spending is  $7,300\$ 7,300$7,300 
-Refer to Scenario 21-1. The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650.
B)  0.664.
C)  0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)  0.800. E) A) and B)
F) A) and C)

Question 12

According to the theory of liquidity preference, if the interest rate rises

Accepted Answer

A)  people want to hold more money. This response is shown by moving to the right along the money demand curve.
B)  people want to hold more money. This response is shown by shifting the money demand curve right.
C)  people want to hold less money. This response is shown by moving to the left along the money demand curve.
D)  people want to hold less money. This response is shown by shifting the money demand curve left.E) All of the above
F) C) and D)

Question 13

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans.
B)  the Fed charges depository institutions for short-term loans.
C)  the Fed pays on deposits.
D)  interest rate on 3 month Treasury bills.E) A) and C)
F) A) and B)

Question 14

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand; higher money demand leads to higher interest rates; a higher interest rate increases the quantity of goods and services demanded.
B)  A higher price level leads to higher money demand; higher money demand leads to lower interest rates; a higher interest rate reduces the quantity of goods and services demanded.
C)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate reduces the quantity of goods and services demanded.
D)  A lower price level leads to lower money demand; lower money demand leads to lower interest rates; a lower interest rate increases the quantity of goods and services demanded.E) A) and D)
F) B) and C)

Question 15

The marginal propensity to consume (MPC)  is defined as the fraction of

Accepted Answer

A)  extra income that a household consumes rather than saves.
B)  extra income that a household either consumes or saves.
C)  total income that a household consumes rather than saves.
D)  total income that a household either consumes or saves.E) A) and B)
F) C) and D)

Question 16

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 C)
F) A) and B)

Question 17

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)  level of real output only.
B)  interest rate only.
C)  level of real output and by the interest rate.
D)  Federal Reserve.E) None of the above
F) C) and D)

Question 18

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Accepted Answer

A)  the price level.
B)  the interest rate.
C)  the exchange rate.
D)  real wealth.E) A) and C)
F) B) and D)

Question 19

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S. m...

Question 20

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

Accepted Answer

The increase in expenditures means that ...

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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Which of the following properly describes the interest-rate effect?

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If the multiplier is 6.25, then the MPC is

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During recessions, taxes tend to

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The marginal propensity to consume (MPC) is defined as the fraction of

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The theory of liquidity preference assumes that the nominal supply of money is determined by the

Correct AnswerverifiedShow Answer

Changes in the interest rate

Correct AnswerverifiedShow Answer

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if the interest rate rises

Correct AnswerverifiedShow Answer

What is the difference between monetary policy and fiscal policy?

Correct AnswerverifiedThe Federal Reserve Bank conducts U.S. m...View AnswerShow Answer

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Correct AnswerverifiedShow Answer

During periods of expansion, automatic stabilizers cause government expenditures

Correct AnswerverifiedShow Answer

Supply-side economists focus more than other economists on

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, the money supply

Correct AnswerverifiedShow Answer

People might deposit more money into interest-bearing accounts,

Correct AnswerverifiedShow Answer

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is you 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

Figure 21-3. -Refer to Figure 21-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

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In the short run, a decrease in the money supply causes interest rates to

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

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The Federal Reserve Bank conducts U.S. m...
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The increase in expenditures means that ...
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