Question 1

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Accepted Answer

A)   $381.67.
B)   $378.
C)   $383.
D)   $383.33.E) A) and C)
F) None of the above

Question 2

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 3

According to liquidity preference theory, if the price level decreases, then

Accepted Answer

A)   the interest rate falls because money demand shifts right.
B)   the interest rate falls because money demand shifts left.
C)   the interest rate rises because money supply shifts right.
D)   the interest rate rises because money supply shifts left.E) B) and D)
F) None of the above

Question 4

What is the difference between monetary policy and fiscal policy?

Accepted Answer

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

Question 5

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

Question 6

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 7

Monetary policy is determined by

Accepted Answer

A)   the president and Congress and involves changing government spending and taxation.
B)   the president and Congress and involves changing the money supply.
C)   the Federal Reserve and involves changing government spending and taxation.
D)   the Federal Reserve and involves changing the money supply.E) A) and D)
F) A) and C)

Question 8

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Accepted Answer

A)   0.2 and the multiplier is 1.25.
B)   0.8 and the multiplier is 5.
C)   0.2 and the multiplier is 1.20.
D)   0.8 and the multiplier is 8.E) A) and B)
F) B) and D)

Question 9

A tax increase has

Accepted Answer

A)   a multiplier effect but not a crowding out effect
B)   a crowding out effect but not a multiplier effect
C)   both a crowding out and multiplier effect
D)   neither a multiplier or crowding out effectE) A) and C)
F) C) and D)

Question 10

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 11

The is the most important automatic stabilizer.

Accepted Answer

The answer of The is the most important automatic stabilizer....

Question 12

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Accepted Answer

A)   left by $180 billion.
B)   left by $500 billion.
C)   right by $180 billion.
D)   right by $400 billion.E) B) and C)
F) A) and B)

Question 13

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Accepted Answer

A)   0.650.
B)   0.750.
C)   0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)   0.800.E) All of the above
F) B) and C)

Question 14

An increase in government spending shifts aggregate demand

Accepted Answer

A)   to the right. The larger the multiplier is, the farther it shifts.
B)   to the right. The larger the multiplier is, the less it shifts.
C)   to the left. The larger the multiplier is, the farther it shifts.
D)   to the left. The larger the multiplier is, the less it shifts.E) A) and B)
F) B) and C)

Question 15

When the interest rate decreases, 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) C) and D)
F) All of the above

Question 16

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 17

Opponents of active stabilization policy

Accepted Answer

A)   advocate a monetary policy designed to offset changes in the unemployment rate.
B)   argue that fiscal policy is unable to change aggregate demand or aggregate supply.
C)   believe that the political process creates lags in the implementation of fiscal policy.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 18

A tax cut shifts aggregate demand

Accepted Answer

A)   by more than the amount of the tax cut.
B)   by the same amount as the tax cut.
C)   by less than the tax cut.
D)   None of the above is necessarily correct.E) A) and B)
F) A) and D)

Question 19

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) C) and D)
F) A) and D)

Question 20

Figure 34-6. 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 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)   there would be no crowding out.
B)   the full multiplier effect of the increase in government purchases would be realized.
C)   the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
D)   All of the above are correct.E) None of the above
F) A) and D)

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

A tax increase has

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

Correct Answer
verified

An increase in government spending shifts aggregate demand

Correct Answer
verified

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct Answer
verified

What is the difference between monetary policy and fiscal policy?

Correct Answer
verified
The Federal Reserve Bank conducts U.S. m...
View Answer

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct Answer
verified

According to liquidity preference theory, if the price level decreases, then

Correct Answer
verified

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct Answer
verified

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Correct Answer
verified

The is the most important automatic stabilizer.

Correct Answer
verified

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following events would shift money demand to the left?

Correct Answer
verified

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct Answer
verified

A tax cut shifts aggregate demand

Correct Answer
verified

Monetary policy is determined by

Correct Answer
verified

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Correct Answer
verified

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct Answer
verified

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

A tax increase has

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in government spending shifts aggregate demand

Correct AnswerverifiedShow Answer

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

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

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. -Refer to Scenario 34-1. The marginal propensity to consume for this economy is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, if the price level decreases, then

Correct AnswerverifiedShow Answer

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Correct AnswerverifiedShow Answer

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Correct AnswerverifiedShow Answer

The is the most important automatic stabilizer.

Correct AnswerverifiedShow Answer

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

Correct AnswerverifiedShow Answer

A tax cut shifts aggregate demand

Correct AnswerverifiedShow Answer

Monetary policy is determined by

Correct AnswerverifiedShow Answer

In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is

Correct AnswerverifiedShow Answer

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

Correct AnswerverifiedShow Answer

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

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