ch 34

if the MPC is .75 and there are no crowding out, then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by a. $80 billion b. $125 billion c. $400 billion d. $500 billion

c. $400 billion

graph

a

in the long run, changes int he money supply affect a. prices b. output c. unemployment rates d. all of the above

a. prices

suppose that the MPC is .6: and there are no crowding out effects. if government expenditures increase by $25 billions, then aggregate demand a. shifts right by $62.5 billion b. shifts right by $50 billion c. shifts right by $32.5 billion d. none of the above

a. shifts right by $62.5 billion

using the liquidity preference model, when the federal reserve increases the money supply, a. the equilibrium interest rate decreases b. the aggregate demand curve shift to the left c. the quantity of goods an services demanded is unchanged for a given price level d. the long run aggregate supply curve shifts to the right

a. the equilibrium interest rate decreases

people choose to hold a smaller quantity of money if. a. the interest rate rises, which causes the opportunity cost of holding money to rise b. the interest rate falls, which cause the opportunity cost of holding money to rise c. if interest rate rises, which cause the opportunity cost of holding money to fall d. if interest rate falls, which causes the opportunity cost of holding money to fall

a. the interest rate rises, which causes the opportunity cost of holding money to rise

the government builds a new water treatment plant. the owner of the company that builds the plant pays her workers. the workers increase their spending. firms from which the workers buy goods increase their output. this type of effect on spending illustrates a. the multiplier effect b. the crowding out effect c. the fisher effect d. the wealth effect

a. the multiplier effect

graph

c

graph

b

which of the following fed actions would both increase the money supply? a. buy bonds and raise the reserve requirement b. buy bonds and lower the reserve requirement c. sell bonds and raise the reserve requirement d. sell bonds and lower the reserve requirement

b. buy bonds and lower the reserve requirement

fiscal policy refers to the idea that aggregate demand is affected by changes in a. the money supply b. government spending and taxes c. trade policy d. all of the above are correct

b. government spending and taxes

which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing sever unemployment? a. decrease the money supply b. increase government expenditures c. increase taxes d. all of the above

b. increase government expenditures

if taxes a. increase, then consumption increases, and aggregate demand shifts right b. increase, then consumption decreases, and aggregate demand shifts left c. decrease, then consumption increases, and aggregate demand shifts left d. decrease, then consumption decreases, and aggregate demand shifts right

b. increase, then consumption decreases, and aggregate demand shifts left

when the interest rate increases 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 increase d. decreases, so the quantity of money demanded decreases

b. increases, so the quantity of money demanded decreases

if business consumes become pessimistic, the fed reserve can attempt to reduce the impact on the price level and real GDP by a. increasing money supply, which increases interest rates b. increasing money supply, which lowers interest rates c. decrease money supply, raise interest rates d. decrease money supply. lower interest rates

b. increasing money supply, which lowers interest rates

government purchase are said to have a. multiplier effect on aggregate supply b. multiplier effect on aggregate demand c. liquidity-enhancing effect on aggregate supply d. liquidity enhancing effect on aggregate demand

b. multiplier effect on aggregate demand

in the short run a, the price level alone adjusts to balance the supply and demand for money b. output responds to changes int eh aggregate demand for goods and services c. changes in the money supply cause a proportional change in the price level d. increases in the money supply shift the aggregate supply curve causing output to rise.

b. output responds to changes int eh aggregate demand for goods and services

the interest rate falls if a. the price level falls or the money supply falls b. the price level falls or the money supply rises c. the prices level rises or the money supply falls d. the price level rises or the money supply rises

b. the price level falls or the money supply rises

on the graph that depicts the theory of liquidity preference, a. the demand for money curve is vertical b. the supply of money curve is vertical c. the interest rate is measured along the horizontal line d. the price level is measured along the vertical axis

b. the supply of money curve is vertical

suppose the MPC is .9. no crowding out effects. government increases expenditures by 30 billion. how much does aggregate demand shift to right. Government decreases taxes by 30 billion, how far foes aggregate demand shift to right. a. 283 and 254.7 bil b. 283 and 283 bil c. 300 and 270 bil d. 300 and 300 bil

c. 300 and 270 bil

If MPC=.85, then the government purchases multiplier is about a. 1.18 b. 3.33 c. 6.67 d. 8.5

c. 6.67

opponents of active stabilization policy a. advocate a monetary policy designed to offset changes in the unemployment rate b. argue that fiscal policy is unable to change aggregate demand or aggregate supply c. believe that the political process creates lags in the implementation of fiscal policy d. none of the above

c. believe that the political process creates lags in the implementation of fiscal policy

shifts in aggregate demand affect the price level in a. the short run but not the long run b. the long run but not the short run c. both the short and long run d. neither the short nor long run

c. both the short and long run

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 increase d. decreases, so the quantity of money demanded decreases

c. decreases, so the quantity of money demanded increase

according to the theory of liquidity preference a. if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the fed has created b. if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the fed has created c. the demand for money is represented by a downward sloping line on a supply and demand graph d. all of the above

c. the demand for money is represented by a downward sloping line on a supply and demand graph

the term crowding out effect refers to a. the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease b. the reduction in aggregate demand that results when a monetary expansion cause the interest rate to decrease c. the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase d. the reduction in aggregate demand that results when a decrease in government spending or an increase intakes causes the interest rate to increase

c. the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase

the multiplier for changes in government spending is calculated as a. MPC b. 1-MPC c. 1/MPC d. 1/(1-MPC)

d. 1/(1-MPC)

which of the following policy actions shifts the aggregate demand curve? a. an increase in the money supply b. an increase in taxes c. and increase in government spending d. all of the above

d. all of the above

when the fed sells government bonds, the reserves of the banking system a. increase, so the money supply increases b. increase, so the money supply decreases c. decrease, so the money supply increases d. decrease, so the money supply decreases

d. decrease, so the money supply decreases

macroeconomic forecasts are a. precise, this makes policy lags less relevant b. precise, this makes policy lags more relevant c. imprecise, this makes policy lags less relevant d. imprecise, this makes policy lags more relevant

d. imprecise, this makes policy lags more relevant

according to the theory of liquidity preference, the money supply a. and money demand are positively related to the interest rate b. and money demand are negatively related to the interest rate c. is negatively related to the interest rate while money demand is positively related to the interest rate d. is independent of the interest rate, while money demand is negatively related to the interest rate

d. is independent of the interest rate, while money demand is negatively related to the interest rate

a reduction in US net exports would shift US aggregate demands a. right. in an attempt to stabilize economy, gov could raise taxes b. right. in an attempt to stabilize economy, gov could cut taxes c. left. in an attempt to stabilize economy, gov could raise taxes d. left. in an attempt to stabilize economy, gov could cut taxes

d. left. in an attempt to stabilize economy, gov could cut taxes

Shifts in the aggregate demand curve can cause fluctuations in a. neither the level of output nor the level of prices b. the level of output, but not the level of prices c. the level of prices, but not the level of output d. the level of output and in the level of prices

d. the level of output and in the level of prices