Question 1

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 2

Assume that there is no accelerator affect.The MPC = 3/4.The government increases both expenditures and taxes by $600.The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone.The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand.How much does aggregate demand shift by?

Accepted Answer

A)   $1480
B)   $480
C)   $160
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 3

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Accepted Answer

A) True 
 B)False

Question 4

In recent years,the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)   bank reserves.
B)   the monetary growth rate.
C)   the exchange rate.
D)   the federal funds rate.E) B) and D)
F) All of the above

Question 5

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) A) and C)

Question 6

If,at some interest rate,the quantity of money supplied is greater 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) B) and C)
F) A) and C)

Question 7

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Accepted Answer

A)   operating at full capacity.
B)   in recession.
C)   experiencing zero inflation.
D)   experiencing high rates of inflation.E) B) and C)
F) None of the above

Question 8

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) A) and B)
F) All of the above

Question 9

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls,people need l...

Question 10

"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 D)
F) C) and D)

Question 11

If the MPC = 0.85,then the government purchases multiplier is about

Accepted Answer

A)   1.18.
B)   3.33.
C)   6.67.
D)   8.5.E) A) and B)
F) A) and C)

Question 12

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)   $60 billion,but the effect would be larger if there were an investment accelerator.
B)   $60 billion,but the effect would be smaller if there were an investment accelerator.
C)   $120 billion,but the effect would be larger if there were an investment accelerator.
D)   $120 billion,but the effect would be smaller if there were an investment accelerator.E) A) and B)
F) All of the above

Question 13

Figure 24-2.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 24-2.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) B) and C)
F) B) and D)

Question 14

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)   shifts the aggregate demand curve to the right.
B)   has a multiplier effect.
C)   shifts the aggregate supply curve to the right,but this effect is likely more important in the long run.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 15

Assume the MPC is 0.80.The multiplier is

Accepted Answer

A)   0.80.
B)   1.25.
C)   4.25.
D)   5.00.E) A) and B)
F) A) and C)

Question 16

An increase in government spending

Accepted Answer

A)   increases the interest rate and so investment spending increases.
B)   increases the interest rate and so investment spending decreases.
C)   decreases the interest rate and so increases investment spending increases.
D)   decreases the interest rate and so investment spending decreases.E) B) and C)
F) A) and B)

Question 17

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Accepted Answer

A)   3.2 for government purchases and 2.0 for tax cuts.
B)   2.4 for government purchases and 1.4 for tax cuts.
C)   1.6 for government purchases and 1.0 for tax cuts.
D)   1.6 for government purchases and 0.4 for tax cuts.E) A) and D)
F) C) and D)

Question 18

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Accepted Answer

A)   buy bonds to raise the interest rate
B)   buy bonds to lower the interest rate.
C)   sell bonds to raise the interest rate.
D)   sell bonds to raise the interest rateE) B) and D)
F) B) and C)

Question 19

When the government reduces taxes,which of the following decreases?

Accepted Answer

A)   consumption
B)   take-home pay
C)   household saving
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 20

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)   zero.
B)   likely smaller than if the cut had been permanent.
C)   likely about the same as if the cut had been permanent.
D)   likely larger than if the cut had been permanent.E) B) and C)
F) A) and D)

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

If the multiplier is 6.25,then the MPC is

Correct Answer
verified

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

An increase in government spending on goods to build or repair infrastructure

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 the MPC = 0.85,then the government purchases multiplier is about

Correct Answer
verified

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

Correct Answer
verified

An increase in government spending

Correct Answer
verified

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Correct Answer
verified

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Correct Answer
verified

Assume the MPC is 0.80.The multiplier is

Correct Answer
verified

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Correct Answer
verified

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Correct Answer
verified

When the government reduces taxes,which of the following decreases?

Correct Answer
verified

In recent years,the Federal Reserve has conducted policy by setting a target for

Correct Answer
verified

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Correct Answer
verified

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct Answer
verified

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct Answer
verified
When the price level falls,people need l...
View Answer

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

If the multiplier is 6.25,then the MPC is

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 5/6,and there is no investment accelerator or crowding out,a $20 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in government spending on goods to build or repair infrastructure

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 the MPC = 0.85,then the government purchases multiplier is about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in government spending

Correct AnswerverifiedShow Answer

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009.At that time,the president's economists estimated the multiplier to be

Correct AnswerverifiedShow Answer

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Correct AnswerverifiedShow Answer

Assume the MPC is 0.80.The multiplier is

Correct AnswerverifiedShow Answer

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Correct AnswerverifiedShow Answer

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Correct AnswerverifiedShow Answer

When the government reduces taxes,which of the following decreases?

Correct AnswerverifiedShow Answer

In recent years,the Federal Reserve has conducted policy by setting a target for

Correct AnswerverifiedShow Answer

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Correct AnswerverifiedShow Answer

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls,people need l...View AnswerShow Answer

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When the price level falls,people need l...
View Answer