Question 1

Fiscal 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 B)
F) C) and D)

Question 2

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Accepted Answer

A)   $283 billion and $254.7 billion
B)   $283 billion and $283 billion
C)   $300 billion and $270 billion
D)   $300 billion and $300 billionE) C) and D)
F) A) and D)

Question 3

According to the theory of liquidity preference, money demand

Accepted Answer

A)   and the money supply are positively related to the interest rate.
B)   and the money supply are negatively related to the interest rate.
C)   is negatively related to the interest rate, while the money supply is independent of the interest rate.
D)   is independent of the interest rate, while money supply is negatively related to the interest rate.E) None of the above
F) A) and D)

Question 4

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) None of the above
F) C) and D)

Question 5

If the Fed increases the money supply,

Accepted Answer

A)   the interest rate increases, which tends to raise stock prices.
B)   the interest rate increases, which tends to reduce stock prices.
C)   the interest rate decreases, which tends to raise stock prices.
D)   the interest rate decreases, which tends to reduce stock prices.E) B) and D)
F) A) and C)

Question 6

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)   both liquidity preference theory and classical theory.
B)   neither liquidity preference theory nor classical theory.
C)   liquidity preference theory, but not classical theory.
D)   classical theory, but not liquidity preference theory.E) None of the above
F) A) and D)

Question 7

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

Question 8

Other things the same, which of the following happens if the price level rises?

Accepted Answer

A)   Money demand shifts rightward.
B)   Initially there is an excess demand for money in the money market.
C)   The interest rate rises.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 9

Figure 34-3 
-Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

A)   the supply of money
B)   the demand for money
C)   the rate of inflation
D)   Aggregate Demand.E) C) and D)
F) A) and C)

Question 10

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)   shift aggregate demand right by a larger amount than the increase in government expenditures.
B)   shift aggregate demand right by the same amount as the increase in government expenditures.
C)   shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)   Any of the above outcomes are possible.E) B) and D)
F) A) and D)

Question 11

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 1.25
D)   0.8 and the multiplier is 8.E) A) and D)
F) A) and C)

Question 12

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect, but not the crowding-out effect
C)   the crowding-out effect, but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) None of the above
F) B) and C)

Question 13

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)   buy bonds to raise interest rates.
B)   buy bonds to lower interest rates.
C)   sell bonds to raise interest rates.
D)   sell bonds to lower interest rates.E) B) and D)
F) A) and B)

Question 14

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 does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)   the quantity of money
B)   the rate of inflation
C)   real output
D)   nominal outputE) None of the above
F) All of the above

Question 15

In the long run, fiscal policy influences

Accepted Answer

A)   saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function.
B)   saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.
C)   technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth.
D)   the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.E) A) and D)
F) All of the above

Question 16

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 17

If the MPC is 3/5 then the multiplier is

Accepted Answer

A)   4, so a $100 increase in government spending increases aggregate demand by $400.
B)   1.5, so a $100 increase in government spending increases output by $150.
C)   2.5, so a $100 increase in government spending increases aggregate demand by $250.
D)   1.67, so a $100 increase in government spending increases output by $166.67.E) A) and B)
F) A) and C)

Question 18

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls, unemployment rises. Mor...

Question 19

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

Accepted Answer

A)   $300 billion and $180 billion
B)   $300 billion and $300 billion
C)   $500 billion and $300 billion
D)   $500 billion and $500 billionE) B) and D)
F) A) and B)

Question 20

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)   increase aggregate demand in the short run and aggregate supply in the long run.
B)   increase aggregate supply in the short run and aggregate demand in the long run.
C)   only increase aggregate supply in the long run.
D)   only increase aggregate demand in the short run.E) C) and D)
F) B) and C)

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct Answer
verified

Fiscal policy is determined by

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

Correct Answer
verified

Explain how unemployment insurance acts as an automatic stabilizer.

Correct Answer
verified
As income falls, unemployment rises. Mor...
View Answer

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

Correct Answer
verified

According to the theory of liquidity preference, money demand

Correct Answer
verified

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct Answer
verified

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct Answer
verified

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Correct Answer
verified

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified

Other things the same, which of the following happens if the price level rises?

Correct Answer
verified

If the MPC is 3/5 then the multiplier is

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

In the long run, fiscal policy influences

Correct Answer
verified

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

Fiscal policy is determined by

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

Correct AnswerverifiedShow Answer

Explain how unemployment insurance acts as an automatic stabilizer.

Correct AnswerverifiedAs income falls, unemployment rises. Mor...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, money demand

Correct AnswerverifiedShow Answer

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Correct AnswerverifiedShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct AnswerverifiedShow Answer

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Correct AnswerverifiedShow Answer

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedShow Answer

Other things the same, which of the following happens if the price level rises?

Correct AnswerverifiedShow Answer

If the MPC is 3/5 then the multiplier is

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

In the long run, fiscal policy influences

Correct AnswerverifiedShow Answer

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As income falls, unemployment rises. Mor...
View Answer

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