macro 34

. people will sell more bonds, which drives interest rates up.

. people will sell more bonds, which drives interest rates up.

In response to which of the following events could aggregate demand increase by $1,500? A stock-market boom increases households' wealth by $500, and there is an operative crowding-out effect. A stock-market boom increases households' wealth by $575, and there is an operative crowding-out effect. An economic boom overseas increases the demand for U.S. net exports by $600, and there is no crowding-out effect. Aggregate demand could increase by $1,500 in response to any of these events.

A stock-market boom increases households' wealth by $575, and there is an operative crowding-out effect.

If the stock market booms, then a. aggregate demand increases, which the Fed could offset by purchasing bonds. b. aggregate supply increases, which the Fed could offset by selling bonds. c. aggregate demand increases, which the Fed could offset by selling bonds. d. aggregate supply increases, which the Fed could offset by purchasing the money supply.

aggregate demand increases, which the fed could offset by selling bonds

Automatic stabilizers -increase the problems that lags cause in using fiscal policy as a stabilization tool. -are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. -are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. -All of the above are correct.

are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession

decrease in net exports causes decrease in aggregate supply

decrease in net exports causes decrease in aggregate supply

People will want to hold less money if the price level a. increases or if the interest rate increases. b. decreases or if the interest rate decreases. c. increases or if the interest rate decreases. d. decreases or if the interest rate increases.

decreases or if the interest rate increases

When the interest rate decreases, the opportunity cost of holding money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded increases. d. decreases, so the quantity of money demanded decreases.

decreases, so the quantity of money demanded increases.

The marginal propensity to consume (MPC) is defined as the fraction of a. extra income that a household consumes rather than saves. b. extra income that a household either consumes or saves .c. total income that a household consumes rather than saves. d. total income that a household either consumes or saves.

extra income that a household consumes rather than saves

Keynes believed that economies experiencing high unemployment should adopt policies to a. reduce the money supply. b. reduce government expenditures. c. increase aggregate demand. d. increase aggregate supply.

increase aggregate demand

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do? a. increase government expenditures or increase the money supply b. increase government expenditures or decrease the money supply c. decrease government expenditures or increase the money supply d. decrease government expenditures or decrease the money supply

increase government expenditures or increase the money supply

Which of the following is an example of crowding out? a. An increase in government spending increases interest rates, causing investment to fall. b. A decrease in private savings increases interest rates, causing investment to fall. c. A decrease in the money supply increases interest rates, causing investment to fall. d. An increase in taxes increases interest rates, causing investment to fall.

increase in government spending increases interest rates, causing investment to fall

a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct.

increase in the money supply

Suppose there is a tax increase. To stabilize output, the Federal Reserve will a. increase government spending. b. increase the money supply. c. decrease government spending. d. decrease the money supply.

increase the money supply

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a a. liquidity preference. b. liquidity trap. c. open-market trap. d. interest-rate contraction.

liquidity trap

The goal of monetary policy and fiscal policy is to a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. enhance the shifts in aggregate demand and thereby increase economic growth

offset shifts in aggregate demand and thereby stabilize the economy

If consumer confidence rises, then aggregate demand shifts a. right, making inflation higher than otherwise. b. right, making inflation lower than otherwise. c. left, making inflation higher than otherwise. d. left, making inflation lower than otherwise.

right, making inflation higher than otherwise

if the federal reserve decided to raise interest rates it could

sell bonds to lower the money supply

Liquidity refers to a. the relation between the price and interest rate of an asset .b. the risk of an asset relative to its selling price. c. the ease with which an asset is converted into a medium of exchange. d. the sensitivity of investment spending to changes in the interest rate.

the ease with which an asset is converted into a medium of exchange.

monetary policy is determined by

the federal reserve and involves changing the money supply

As the interest rate falls, a. the quantity of money demanded falls, which would reduce a shortage. b. the quantity of money demanded falls, which would reduce a surplus. c. the quantity of money demanded rises, which would reduce a shortage. d. the quantity of money demanded rises, which would reduce a surplus.

the quantity of money demanded rises, which would reduce a surplus.

The primary argument against active monetary and fiscal policy is that

these policies affect the economy with a long lag

the logic of the multiplier effect applies

to any change in spending on any component of GDP

during periods of expansion, automatic stabilizers cause government expenditures

to fall and taxes to rise