Question 1

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following shifts money demand to the right?

Accepted Answer

A)  an increase in the price level and the interest rate
B)  an increase in the price level and a decrease in the interest rate
C)  a decrease in the interest rate but not a change in the price level
D)  an increase in the price level but not a change in the interest rateE) A) and C)
F) A) and B)

Question 3

Which of the following shifts money demand to the right?

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

Question 4

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in interest rates
B)  a decrease in the price level
C)  a decrease in the money supply
D)  a decrease in the bank rateE) B) and D)
F) All of the above

Question 5

What does fiscal policy primarily affect in the short run?

Accepted Answer

A)  saving
B)  investment
C)  aggregate demand
D)  aggregate supplyE) None of the above
F) A) and D)

Question 6

According to the theory of liquidity preference,which of the following variables adjusts to balance the supply and demand for money?

Accepted Answer

A)  interest rate
B)  money supply
C)  quantity of output
D)  price levelE) A) and B)
F) B) and C)

Question 7

If the Bank of Canada maintains a fixed exchange rate,which of the following effects will an expansionary fiscal policy have?

Accepted Answer

A)  It will cause a large and permanent rightward shift in the AD curve.
B)  It will cause a large and permanent leftward shift in the AD curve.
C)  It will have no permanent effect on the position of the AD curve, but it will cause interest rates to rise.
D)  It will have no permanent effect on either the position of the AD curve or the interest rate.E) A) and B)
F) A) and C)

Question 8

How does a reduction in the money supply by the Bank of Canada make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises...

Question 9

In which of the following situations do people want to hold less money?

Accepted Answer

A)  when the price level and the interest rate increases
B)  when the price level and the interest rate decreases
C)  when the price level increases and the interest rate decreases
D)  when the price level decreases and the interest rate increasesE) B) and C)
F) All of the above

Question 10

If the MPC = 0.9,what is the government purchases multiplier?

Accepted Answer

A)  0.10
B)  1
C)  1.11
D)  10E) A) and C)
F) A) and B)

Question 11

An increase in government spending initially and primarily shifts which curve in what direction?

Accepted Answer

A)  aggregate demand to the right
B)  aggregate demand to the left
C)  aggregate supply to the right
D)  aggregate supply to the leftE) B) and C)
F) B) and D)

Question 12

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

Accepted Answer

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

Question 13

How does the interest rate change when the price level falls and when the money supply falls?

Accepted Answer

A)  The interest rate rises both when the price level falls and when the money supply falls.
B)  The interest rate rises when the price level falls and falls when the money supply falls.
C)  The interest rate falls when the price level falls and rises when the money supply falls.
D)  The interest rate falls both when the price level falls and when the money supply falls.E) A) and D)
F) All of the above

Question 14

Suppose the economy is in long-run equilibrium.Parliament passes regulations that make it more costly to conduct business,so the long-run aggregate-supply curve shifts $80 billion to the left.At the same time,government purchases increase by $60 billion.If the MPC equals 0.75 and the crowding-out effect is $70 billion,what would we expect to happen in the long run to real GDP and the price level?

Accepted Answer

A)  Both real GDP and the price level would be higher.
B)  Both real GDP and the price level would be lower.
C)  Real GDP would be lower, but the price level would be higher.
D)  Real GDP would be lower, but the price level would be the same.E) A) and D)
F) A) and B)

Question 15

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Accepted Answer

A)  the crowding-out effect
B)  the multiplier effect
C)  the wealth effect
D)  the interest-rate effectE) A) and B)
F) B) and C)

Question 16

Supply-side economists believe that lowering taxes has what effects?

Accepted Answer

A)  It lowers aggregate demand and increases aggregate supply.
B)  It lowers both aggregate demand and aggregate supply.
C)  It increases both aggregate demand and aggregate supply.
D)  It increases aggregate demand and decreases aggregate supply.E) A) and D)
F) B) and D)

Question 17

Figure 15-2
 
-Refer to the Figure 15-2.In a closed economy,which of the following would cause the aggregate demand curve to shift from AD to AD*?

Accepted Answer

A)  an increase in government purchases
B)  a decrease in stock prices
C)  an increase in consumer and firm optimism about the future
D)  an increase in the price levelE) A) and B)
F) None of the above

Question 18

What do open-market purchases do to the price level and real GDP?

Accepted Answer

A)  They increase the price level and real GDP.
B)  They decrease the price level and real GDP.
C)  They increase the price level and decrease real GDP.
D)  They decrease the price level and increase real GDP.E) B) and D)
F) B) and C)

Question 19

Which of the following factors mostly determines the lag problem associated with monetary policy?

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)  the time it takes to print moneyE) A) and D)
F) B) and C)

Question 20

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)  It induces firms to invest more.
B)  It induces households to increase consumption.
C)  It shifts money demand to the right.
D)  It leads to the appreciation of the exchange rate.E) B) and C)
F) C) and D)

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Correct Answer
verified

Which of the following shifts money demand to the right?

Correct Answer
verified

If the MPC = 0.9,what is the government purchases multiplier?

Correct Answer
verified

Which of the following is an effect of an increase in the interest rate?

Correct Answer
verified

How does a reduction in the money supply by the Bank of Canada make owning stocks less attractive?

Correct Answer
verified
The reduction in the money supply raises...
View Answer

Which of the following factors mostly determines the lag problem associated with monetary policy?

Correct Answer
verified

Correct Answer
verified

Supply-side economists believe that lowering taxes has what effects?

Correct Answer
verified

In which of the following situations do people want to hold less money?

Correct Answer
verified

According to the theory of liquidity preference,which of the following variables adjusts to balance the supply and demand for money?

Correct Answer
verified

An increase in government spending initially and primarily shifts which curve in what direction?

Correct Answer
verified

Which of the following shifts money demand to the right?

Correct Answer
verified

How does the interest rate change when the price level falls and when the money supply falls?

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

What do open-market purchases do to the price level and real GDP?

Correct Answer
verified

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,which of the following would cause the aggregate demand curve to shift from AD to AD*?

Correct Answer
verified

What does fiscal policy primarily affect in the short run?

Correct Answer
verified

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

If the Bank of Canada maintains a fixed exchange rate,which of the following effects will an expansionary fiscal policy have?

Correct Answer
verified

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Correct AnswerverifiedShow Answer

Which of the following shifts money demand to the right?

Correct AnswerverifiedShow Answer

If the MPC = 0.9,what is the government purchases multiplier?

Correct AnswerverifiedShow Answer

Which of the following is an effect of an increase in the interest rate?

Correct AnswerverifiedShow Answer

How does a reduction in the money supply by the Bank of Canada make owning stocks less attractive?

Correct AnswerverifiedThe reduction in the money supply raises...View AnswerShow Answer

Which of the following factors mostly determines the lag problem associated with monetary policy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Supply-side economists believe that lowering taxes has what effects?

Correct AnswerverifiedShow Answer

In which of the following situations do people want to hold less money?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,which of the following variables adjusts to balance the supply and demand for money?

Correct AnswerverifiedShow Answer

An increase in government spending initially and primarily shifts which curve in what direction?

Correct AnswerverifiedShow Answer

Which of the following shifts money demand to the right?

Correct AnswerverifiedShow Answer

How does the interest rate change when the price level falls and when the money supply falls?

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

What do open-market purchases do to the price level and real GDP?

Correct AnswerverifiedShow Answer

Figure 15-2 -Refer to the Figure 15-2.In a closed economy,which of the following would cause the aggregate demand curve to shift from AD to AD*?

Correct AnswerverifiedShow Answer

What does fiscal policy primarily affect in the short run?

Correct AnswerverifiedShow Answer

According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

If the Bank of Canada maintains a fixed exchange rate,which of the following effects will an expansionary fiscal policy have?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The reduction in the money supply raises...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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