econ chap 12

A decrease in net taxes intended to change output level in a particular direction is best described as a(n) (a) expansionary fiscal policy. (b) contractionary fiscal policy. (c) expansionary monetary policy. (d) contractionary monetary policy.

A

An increase in money supply will result in ________ output and a ________ interest rate. (a) higher; lower (b) higher; higher (c) lower; lower (d) lower; higher

A

An increase in planned aggregate expenditure will make the interest rate __________ while an increase in the money supply will make planned expenditure ______________ . (a) increase; increase (b) increase; decrease (c) decrease; increase (d) decrease; decrease

A

An open market purchase of securities by the Fed will cause (a) the interest rate to fall. (b) a decrease in the quantity of money demanded. (c) a shortage of money at the original equilibrium interest rate. (d) the AE curve to shift down (to the right).

A

The _________ curve will shift to the ________ if the government cuts taxes. (a) IS; right (b) IS; left (c) LM; right (d) LM; left

A

The intended goal of an expansionary policy (a) is an increase in the level of aggregate output. (b) is an increase in the interest rate. (c) is a decrease in the interest rate. (d) depends on whether a fiscal policy or a monetary policy is used.

A

The main goal of an expansionary fiscal policy is to _________; he main goal of an expansionary monetary policy is to ________. (a) increase output level; increase output level. (b) increase output level; decrease the interest rate (c) decrease the interest rate; increase output level (d) decrease the interest rate; decrease the interest rate

A

A decrease in net personal income taxes will cause (a) the LM curve to shift to the left. (b) the IS curve to shift to the right. (c) the AE curve to shift downward. (d) investment to increase.

B

A simultaneous increase in net taxes and open market sale of securities by the Fed will _________ equilibrium output and _________ the interest rate. (a) increase; decrease (b) decrease; have an indeterminate effect on (c) decrease; increase (d) have an indeterminate effect on; increase

B

An increase in government spending will cause a decrease in planned investment, most directly as a result of an increase in (a) aggregate output. (b) the interest rate. (c) the money supply. (d) the price level.

B

An increase in government spending will lead to a(n) ________ and a(n) ________ in planned investment. (a) increase; increase (b) increase; decrease (c) decrease; increase (d) decrease; decrease

B

If the Fed simultaneously lowered the required reserve ratio and sold government securities, which one of the following could not be a possible consequence? (a) An increase in money supply and an increase in money demand (b) An increase in money supply and a decrease in money demand (c) A decrease in money supply and a decrease in money demand (d) A rise in the interest rate

B

The feedback effect between the goods market and money market is best illustrated by the situation when, for example, (a) contractionary monetary policy leads to a reduction in the money supply. (b) consumption suddenly rises causing a fall in investment due to a rising interest rate. (c) contractionary fiscal policy leads to a reduction in the money supply. (d) the value of the money multiplier is reduced due to an increasing required reserve ratio.

B

The money and goods markets are in equilibrium. Now there is an expansion in the money supply. This will _________ investment and cause the demand for money to ____________. (a) reduce;increase (b) stimulate; increase (c) stimulate;decrease (d) reduce; decrease

B

A decrease in the interest rate will cause (a) the money supply curve to shift left. (b) the money supply curve to shift right. (c) the planned aggregate expenditure curve to shift up. (d) the planned aggregate expenditure curve to shift down.

C

In each of the following cases we would expect the interest rate to decrease, *EXCEPT* when (a) there is a decrease in the required reserve ratio. (b) the government increases tax collections. (c) government spending is increased. (d) there is a reduction in the level of economic activity.

C

The AD curve is derived by holding constant all of the following EXCEPT (a) government spending. (b) net taxes. (c) money demand. (d) money supply.

C

The IS curve has a _______ slope and depicts equilibrium in the _________ market. (a) positive; goods (b) positive; money (c) negative; goods (d) negative; money

C

The _______ curve will shift to the ________ if the Fed buys securities. (a) IS; right (b) IS; left (c) LM; right (d) LM; left

C

The equilibrium interest rate is determined in the __________ market and the equilibrium output level is determined in the ___________ market. (a) goods; goods (b) goods; money (c) money; goods (d) money; money

C

When the interest rate decreases, the cost of financing investments __________ and __________ investments projects will be undertaken. (a) increases; more (b) increases;fewer (c) decreases; more (d) decreases; fewer

C

Which of the following would not accompany a fall in the discount rate? (a) An expansion in the money supply (b) A rise in planned investment (c) An unplanned rise in inventories (d) An increase in aggregate output (income)

C

An open market sale of government securities is a(n) __________ monetary policy. The AE curve will shift _________ . (a) expansionary; up (b) expansionary; down (c) contractionary; up (d) contractionary; down

D

In the presence of a crowding-out effect, a contractionary fiscal policy will result in a ________ in output than if there were no crowding-out effect. (a) largerincrease (b) smaller increase (c) larger decrease (d) smaller decrease

D

Which circumstance will not strengthen the crowding-out effect? (a) A higher interest-sensitivity of investment (b) A higher money demand as spending increases (c) A steeper slope of the AE curve (d) A greater money multiplier

D

Which of the following statements is false? Ceteris paribus, (a) the lower the level of aggregate output, the lower the interest rate. (b) when the interest rate falls, planned aggregate expenditure increases. (c) as real output level increases, money demand increases. (d) as money demand increases, real output level increases.

D

Which of the following statements is true? Ceteris paribus, (a) r(up)→Y(up)→I(up)→AE(up). (b) r (up) → Y (down) → I (down) → AE (down). (c) r (up) → AE (down) → Y (down) → I (down). (d) r (up) → I (down) → AE (down) → Y (down).

D