Question 1

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) A) and D)
F) B) and D)

Question 2

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 3

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) C) and D)
F) A) and B) B

Question 4

If the interest rate decreases

Accepted Answer

A)   or if the price level increases, then people will want to hold more money.
B)   or if the price level increases, then people will want to hold less money.
C)   or if the price level decreases, then people will want to hold more money.
D)   or if the price level decreases, then people will want to hold less money.E) A) and B)
F) None of the above

Question 5

Other things the same, during recessions taxes tend to

Accepted Answer

A)   rise. The rise in taxes stimulates aggregate demand.
B)   rise. The rise in taxes contracts aggregate demand.
C)   fall. The fall in taxes stimulates aggregate demand.
D)   fall. The fall in taxes contracts aggregate demand.E) C) and D)
F) None of the above

Question 6

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A)   an increase in investment spending.
B)   an increase in national savings.
C)   an increase in private savings.
D)   an increase in personal consumption.E) A) and B)
F) B) and D)

Question 7

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)   When interest rates fall, In-and-Out Convenience Stores decides to build some new stores.
B)   The exchange rate falls, so French restaurants in Paris buy more Kansas beef.
C)   Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen.
D)   With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.E) All of the above
F) A) and C) D

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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) B) and D)
F) B) and C)

Question 10

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.
 
-Refer to Figure 34-2. As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)   the price level is held fixed at P1.
B)   the interest rate is held fixed at r1.
C)   the money supply is changing so as to keep the money market in equilibrium.
D)   the expected inflation rate is changing so as to keep the real interest rate constant.E) A) and C)
F) A) and B)

Question 11

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Accepted Answer

A)   Dwight D. Eisenhower
B)   John F. Kennedy
C)   Ronald Reagan
D)   Bill ClintonE) None of the above
F) All of the above

Question 12

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, 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) A) and D)
F) All of the above

Question 13

If the stock market crashes, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by increasing the money supply.
B)   aggregate demand increases, which the Fed could offset by decreasing the money supply.
C)   aggregate demand decreases, which the Fed could offset by increasing the money supply.
D)   aggregate demand decreases, which the Fed could offset by decreasing the money supply.E) B) and C)
F) B) and D)

Question 14

The short-run effects on the interest rate are

Accepted Answer

A)   shown equally well using either liquidity preference theory or classical theory.
B)   best shown using classical theory.
C)   best shown using liquidity preference theory.
D)   not shown well by either liquidity preference theory or classical theory.E) A) and B)
F) A) and C)

Question 15

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   rightward shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.
C)   changes in monetary policy aimed at expanding aggregate demand can be described either as increasing the money supply or as increasing the interest rate.
D)   our analysis of monetary policy is not fundamentally altered if the Federal Reserve decides to target an interest rate.E) A) and C)
F) All of the above

Question 16

If households view a tax cut as temporary, then the tax cut

Accepted Answer

A)   has no effect on aggregate demand.
B)   has more of an effect on aggregate demand than if households view it as permanent.
C)   has the same effect as when households view the cut as permanent.
D)   has less of an effect on aggregate demand than if households view it as permanent.E) B) and C)
F) None of the above D

Question 17

According to classical macroeconomic theory,

Accepted Answer

A)   output is determined by the supplies of capital and labor and the available production technology.
B)   for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds.
C)   given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money.
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 18

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)   president George W. Bush
B)   president John F. Kennedy
C)   economist John Maynard Keynes
D)   former chairman of the Federal Reserve System William McChesney MartinE) B) and D)
F) B) and C)

Question 19

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) A) and D)
F) B) and C)

Question 20

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Accepted Answer

A)   shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate.
B)   the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.
C)   changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.
D)   the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate.E) A) and B)
F) B) and C)

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

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

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Other things the same, as the price level rises,

Correct Answer
verified
B

If the interest rate decreases

Correct Answer
verified

Other things the same, during recessions taxes tend to

Correct Answer
verified

A reduction in personal income taxes increases Aggregate Demand through

Correct Answer
verified

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct Answer
verified
D

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

Correct Answer
verified

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
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Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Correct Answer
verified

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

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

The short-run effects on the interest rate are

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

If households view a tax cut as temporary, then the tax cut

Correct Answer
verified
D

According to classical macroeconomic theory,

Correct Answer
verified

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct Answer
verified

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

Correct Answer
verified

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

Other things the same, as the price level rises,

Correct AnswerverifiedB

If the interest rate decreases

Correct AnswerverifiedShow Answer

Other things the same, during recessions taxes tend to

Correct AnswerverifiedShow Answer

A reduction in personal income taxes increases Aggregate Demand through

Correct AnswerverifiedShow Answer

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow 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

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

The short-run effects on the interest rate are

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

If households view a tax cut as temporary, then the tax cut

Correct AnswerverifiedD

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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The nominal interest rate on currency is...
View Answer

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B

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D

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D

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