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Macroeconomics [ch. 21]

35 Questions  I  By Emy_2
Economics Quizzes & Trivia
The influence of monetary and fiscal policy on aggregate demand

  
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1.  An increase in the interest rate increases the quantity demanded of money because it increases the rate of return on money
A.
B.
2.  When money demand is drawn on a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level shifts money demand to the right
A.
B.
3.  Keynes's theory of liquidity preference suggests that the interest rate is determined by the supply and demand for money
A.
B.
4.  The interest-rate effect suggests that aggregate demand slopes downward because an increase in the price level shifts money demand to the right, increases the interest rate, and reduces investment
A.
B.
5.  An increase in the money supply shifts the money supply curve to the right, increases the interest rate, decreases investment, and shifts the aggregate-demand curve to the left
A.
B.
6.  Suppose investors and consumers become pessimistic about the future and cut back on expenditures.  If the Fed engages in activist stabilization policy, the policy response should be to decrease the money supply
A.
B.
7.  In the short run, a decision by the Fed to increase the money supply is essentially the same as a decision to decrease the interest rate target
A.
B.
8.  Because of the multiplier effect, an increase in government spending of $40 billion will shift the aggregate-demand curve to the right by more than $40 billion (assuming there is no crowding out)
A.
B.
9.  If the MPC (marginal propensity to consume) is .80, then the value of the multiplier is 8
A.
B.
10.  Crowding out occurs when an increase in government spending increases incomes, shifts money demand to the right, raises the interest rate, and reduces private investment
A.
B.
11.  Suppose the government increases its expenditure by $10 billion.  If the crowding-out effect exceeds the multiplier effect, then the aggregate-demand curve shifts to the right by more than $10 billion
A.
B.
12.  Suppose investors and consumers become pessimistic about the future and cut back on expenditures.  If fiscal policymakers engage in activist stabilization policy, the policy response should be the decrease government spending and increase taxes 
A.
B.
13.  Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policies
A.
B.
14.  In the short run, the interest rate is determined by the loanable-funds market, while in the long run, the interest rate is determined by money demand and money supply
A.
B.
15.  Unemployment benefits are an example of an automatic stabilizer because when incomes fall, unemployment benefits rise
A.
B.
16.  Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by
A.
B.
C.
D.
17.  When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate
A.
B.
C.
D.
E.
18.  When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level
A.
B.
C.
D.
E.
19.  For the United States, the most important source of the downward slope of the aggregate-demand curve is
A.
B.
C.
D.
E.
20.  In the market for real output, the initial effect of an increase in the money supply is to
A.
B.
C.
D.
21.  The initial effect of an increase in the money supply is to
A.
B.
C.
D.
22.  The long-run effect of an increase in the money supply is to
A.
B.
C.
D.
23.  Suppose a wave of investor and consumer pessimism causes a reduction in spending. If the Federal Reserve chooses to engage in activist stabilization policy, it should
A.
B.
C.
D.
24.  The initial impact of an increase in government spending is to shift
A.
B.
C.
D.
25.  If the marginal propensity to consume (MPC) is .75, the value of the multiplier is
A.
B.
C.
D.
26.  An increase in the marginal propensity to consume (MPC)
A.
B.
C.
D.
27.  Suppose a wave of investor and consumer optimism has increased spending so that the current level of output exceeds the long-run natural rate. If policymakers choose to engage in activist stabilization policy, they should
A.
B.
C.
D.
28.  When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of
A.
B.
C.
D.
E.
29.  Which of the following statements regarding taxes is correct?
A.
B.
C.
D.
30.  Suppose the government increases its purchases by $16 billion. If the multiplier effect exceeds the crowding-out effect, then
A.
B.
C.
D.
31.  When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of
A.
B.
C.
D.
E.
32.  When an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of
A.
B.
C.
D.
E.
33.  Which of the following is an automatic stabilizer?
A.
B.
C.
D.
E.
34.  Which of the following statements about stabilization policy is true
A.
B.
C.
D.
E.
35.  Which of the following best describes how an increase in the money supply shifts aggregate demand?
A.
B.
C.
D.
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