Question 1

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)   open-market rate.
B)   discount rate.
C)   preference rate.
D)   None of the above are correct.E) A) and D)
F) None of the above

Question 2

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 3

The interest-rate effect

Accepted Answer

A)   depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.
B)   depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded.
C)   is responsible for the downward slope of the money-demand curve.
D)   is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.E) None of the above
F) All of the above

Question 4

The multiplier effect

Accepted Answer

A)   and the crowding-out effect both amplify the effects of an increase in government expenditures.
B)   and the crowding-out effect both diminish the effects of an increase in government expenditures.
C)   diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects.
D)   amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.E) A) and C)
F) C) and D)

Question 5

Figure 34-8 
-Refer to Figure 34-8. An increase in government purchases will

Accepted Answer

A)   shift aggregate demand from AD1 to AD2.
B)   shift aggregate demand from AD1 to AD3.
C)   cause movement from point A to point B along AD1.
D)   have no effect on aggregate demand.E) A) and B)
F) None of the above

Question 6

Figure 34-10 
-Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Accepted Answer

The answer of Figure 34-10 
-Refer to Figure 34-10. Suppose...

Question 7

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Accepted Answer

A)   increase government spending.
B)   increase the money supply.
C)   decrease government spending.
D)   decrease the money supply.E) B) and C)
F) A) and D)

Question 8

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 9

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. What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)   nominal output
B)   real output
C)   the opportunity cost of holding money
D)   the quantity of moneyE) A) and B)
F) All of the above

Question 10

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Accepted Answer

The answer of The additional shifts in aggregate demand that...

Question 11

If the Federal Reserve decreases the money supply, then initially there is a

Accepted Answer

A)   shortage in the money market, so people will want to sell bonds.
B)   shortage in the money market, so people will want to buy bonds.
C)   surplus in the money market, so people will want to sell bonds.
D)   surplus in the money market, so people will want to buy bonds.E) A) and D)
F) A) and C)

Question 12

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 13

As the MPC gets close to 1, the value of the multiplier approaches

Accepted Answer

A)   0.
B)   1.
C)   infinity.
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 14

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

When the interest rate increases, 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) A) and B)
F) A) and C)

Question 16

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)   increased the money supply and increased interest rates.
B)   increased the money supply and decreased interest rates.
C)   decreased the money supply and increased interest rates.
D)   decreased the money supply and decreased interest rates.E) B) and C)
F) A) and D)

Question 17

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of determining monetary policy.
C)   the time it takes for changes in government spending to affect the interest rate.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 18

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

Question 19

The process of the investment accelerator involves

Accepted Answer

A)   positive feedback from aggregate demand to investment.
B)   negative feedback from aggregate demand to investment.
C)   positive feedback from aggregate supply to investment.
D)   negative feedback from aggregate supply to investment.E) A) and B)
F) B) and C)

Question 20

If the multiplier is 3, then the MPC is

Accepted Answer

A)   1/3.
B)   3/4.
C)   4/3.
D)   2/3.E) All of the above
F) A) and D)

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

As the MPC gets close to 1, the value of the multiplier approaches

Correct Answer
verified

If the Federal Reserve decreases the money supply, then initially there is a

Correct Answer
verified

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The multiplier effect

Correct Answer
verified

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Correct Answer
verified

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct Answer
verified

Correct Answer
verified

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct Answer
verified

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct Answer
verified

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Correct Answer
verified

The lag problem associated with monetary policy is due mostly to

Correct Answer
verified

The process of the investment accelerator involves

Correct Answer
verified

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct Answer
verified

If the multiplier is 3, then the MPC is

Correct Answer
verified

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct Answer
verified

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

As the MPC gets close to 1, the value of the multiplier approaches

Correct AnswerverifiedShow Answer

If the Federal Reserve decreases the money supply, then initially there is a

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The multiplier effect

Correct AnswerverifiedShow Answer

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct AnswerverifiedShow Answer

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

Correct AnswerverifiedShow Answer

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.

Correct AnswerverifiedShow Answer

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will

Correct AnswerverifiedShow Answer

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

Correct AnswerverifiedShow Answer

The lag problem associated with monetary policy is due mostly to

Correct AnswerverifiedShow Answer

The process of the investment accelerator involves

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

If the multiplier is 3, then the MPC is

Correct AnswerverifiedShow Answer

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

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