Question 1

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.

Question 2

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

Accepted Answer

A)  decreases, so the quantity of money demanded decreases.
B)  decreases, so the quantity of money demanded increases.
C)  increases, so the quantity of money demanded decreases.
D)  increases, so the quantity of money demanded increases.

Question 3

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Accepted Answer

increase t...

Question 4

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 5

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

Question 6

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Accepted Answer

A)  $60.25.
B)  $60.75.
C)  $61.33.
D)  $64.00.

Question 7

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int...

Question 8

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one-third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)  By $90 billion
B)  By $60 billion
C)  By $20 billion
D)  By $30 billion

Question 9

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

A) True 
 B)False

Question 10

If the multiplier is 3, then the MPC is

Accepted Answer

A)  1/3.
B)  3/4.
C)  4/3.
D)  2/3.

Question 11

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.

Question 12

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  An increase in the price level
B)  An increase in the money supply
C)  A decrease in the price level
D)  A decrease in the money supply

Question 13

Scenario 34-1. Take the following information as given for a small 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.

Question 14

The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

Accepted Answer

A)  reduces investment and thereby increases consumer spending.
B)  increases the money supply and thereby reduces interest rates.
C)  increases income and thereby increases consumer spending.
D)  decreases income and thereby increases consumer spending.

Question 15

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Accepted Answer

increases,...

Question 16

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $115 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)  $460 billion, but the effect would be larger if there were an investment accelerator.
B)  $460 billion, but the effect would be smaller if there were an investment accelerator.
C)  $345 billion, but the effect would be larger if there were an investment accelerator.
D)  $345 billion, but the effect would be smaller if there were an investment accelerator.

Question 17

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows:

Accepted Answer

A)  "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent."
B)  "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount."
C)  "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent."
D)  "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent."

Question 18

In the short run, open-market purchases

Accepted Answer

A)  increase investment and real GDP, and decrease interest rates.
B)  increase real GDP and interest rates, and decrease investment.
C)  increase investment and interest rates, and decrease real GDP.
D)  decrease investment, interest rates, and real GDP.

Question 19

Figure 34-10  ​
-Refer to Figure 34-10. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

Accepted Answer

government...

Question 20

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.

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct Answer
verified

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows:

Correct Answer
verified

Scenario 34-1. Take the following information as given for a small 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

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Correct Answer
verified
increase t...
View Answer

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

Correct Answer
verified

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Correct Answer
verified

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $115 billion increase in government expenditures would shift the aggregate demand curve right by

Correct Answer
verified

The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

Correct Answer
verified

In the short run, open-market purchases

Correct Answer
verified

If the multiplier is 3, then the MPC is

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

Which of the following shifts aggregate demand to the left?

Correct Answer
verified

If the MPC is 3/5 then the multiplier is

Correct Answer
verified

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct Answer
verified

During recessions, unemployment insurance payments tend to rise.

Correct Answer
verified

When the Federal Reserve conducts an open-market purchase, the money supply _ and aggregate demand _.

Correct Answer
verified
increases,...
View Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct Answer
verified
When the money supply increases, the int...
View Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. The economy is currently at point A. To stabilize output, the president and Congress can reduce _ and/or increase _.

Correct Answer
verified
government...
View Answer

Correct Answer
verified

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct AnswerverifiedShow Answer

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows:

Correct AnswerverifiedShow Answer

Scenario 34-1. Take the following information as given for a small 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

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Correct Answerverifiedincrease t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $115 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

Correct AnswerverifiedShow Answer

In the short run, open-market purchases

Correct AnswerverifiedShow Answer

If the multiplier is 3, then the MPC is

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

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

If the MPC is 3/5 then the multiplier is

Correct AnswerverifiedShow Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

When the Federal Reserve conducts an open-market purchase, the money supply _____ and aggregate demand _____.

Correct Answerverifiedincreases,...View AnswerShow Answer

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Correct AnswerverifiedWhen the money supply increases, the int...View AnswerShow Answer

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

Correct AnswerverifiedShow Answer

Figure 34-10 ​ -Refer to Figure 34-10. The economy is currently at point A. To stabilize output, the president and Congress can reduce _____ and/or increase _____.

Correct Answerverifiedgovernment...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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increase t...
View Answer

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Correct Answer
verified

When the Federal Reserve conducts an open-market purchase, the money supply _ and aggregate demand _.

Correct Answer
verified
increases,...
View Answer

Correct Answer
verified
When the money supply increases, the int...
View Answer

Correct Answer
verified

Figure 34-10 -Refer to Figure 34-10. The economy is currently at point A. To stabilize output, the president and Congress can reduce _ and/or increase _.

Correct Answer
verified
government...
View Answer

Correct Answer
verified