econ

16. The total demand for money will shift to the left as a result of A. a decline in nominal GDP. B. an increase in the price level. C. a change in the interest rate. D. an increase in nominal GDP.

A

26 . The group of three economists appointed by the president to provide fiscal policy recommendations is the A. Council of Economic Advisers. B. Joint Economic Committee. C. Bureau of Economic Analysis. D. Federal Reserve Board of Governors.

A

17. The asset demand for money is downsloping because A. the opportunity cost of holding money increases as the interest rate rises. B. it is more attractive to hold money at high interest rates than at low interest rates. C. bond prices rise as interest rates rise. D. the opportunity cost of holding money declines as the interest rate rises.

A

29. Fiscal policy refers to the A. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. B. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.

A

3. The desire to hold money for transactions purposes arises because A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money.

A

33. An economist who favors smaller government would recommend A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A

34. If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by A. increasing government spending by $4 billion. B. increasing government spending by $40 billion. C. decreasing taxes by $4 billion. D. increasing taxes by $4 billion.

A

39. Discretionary fiscal policy will stabilize the economy most when A. deficits are incurred during recessions and surpluses during inflations. B. the budget is balanced each year. C. deficits are incurred during inflations and surpluses during recessions. D. budget surpluses are continuously incurred.

A

43. In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should A. increase tax rates and/or reduce government spending. B. discourage personal saving by reducing the interest rate on government bonds. C. increase government expenditures. D. encourage private investment by reducing corporate income taxes.

A

7. On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by A. horizontally adding the transactions and the asset demand for money. B. vertically subtracting the transactions demand from the asset demand for money. C. horizontally subtracting the asset demand from the transactions demand for money. D. vertically adding the transactions and the asset demand for money.

A

8. The total demand for money curve will shift to the right as a result of A. an increase in nominal GDP. B. an increase in the interest rate. C. a decline in the interest rate. D. a decline in nominal GDP.

A

1. The transactions demand for money is most closely related to money functioning as a A. unit of account. B. medium of exchange. C. store of value. D. measure of value.

B

12. It is costly to hold money because A. deflation may reduce its purchasing power. B. in doing so, one sacrifices interest income. C. bond prices are highly variable. D. the rate at which money is spent may decline.

B

13. An increase in nominal GDP increases the demand for money because A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline.

B

14. Which of the following is correct? A. The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. B. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. C. The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. D. The asset demand for money is downsloping because bond prices and the interest rate are directly related.

B

18. (Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 - 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold? A. $200 B. $120 C. $320 D. $160

B

22. If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money.

B

25.Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that A. bond prices and interest rates are inversely related. B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. C. the rate at which money is spent is zero. D. lower interest rates result in lower opportunity costs of supplying money.

B

28. Countercyclical discretionary fiscal policy calls for A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B

37. If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by A. reducing government expenditures by $125 billion. B. reducing government expenditures by $20 billion. C. increasing taxes by $50 billion. D. increasing taxes by $250 billion.

B

4. The asset demand for money A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP.

B

40. The effect of a government surplus on the equilibrium level of GDP is substantially the same as A. a decrease in imports. B. an increase in saving. C. an increase in consumption. D. an increase in investment.

B

45. An appropriate fiscal policy for a severe recession is A. a decrease in government spending. B. a decrease in tax rates. C. appreciation of the dollar. D. an increase in interest rates.

B

48. Which of the following represents the most expansionary fiscal policy? A. a $10 billion tax cut B. a $10 billion increase in government spending C. a $10 billion tax increase D. a $10 billion decrease in government spending

B

5. On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by A. a line parallel to the horizontal axis. B. a vertical line. C. a downsloping line or curve from left to right. D. an upsloping line or curve from left to right.

B

10. If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be A. $1,800 billion. B. $600 billion. C. $200 billion.

C

15. The opportunity cost of holding money A. is zero because money is not an economic resource. B. varies inversely with the interest rate. C. varies directly with the interest rate. D. varies inversely with the level of economic activity.

C

19. If the quantity of money demanded exceeds the quantity supplied, A. the supply-of-money curve will shift to the left. B. the demand-for-money curve will shift to the right. C. the interest rate will rise. D. the interest rate will fall.

C

2. The asset demand for money is most closely related to money functioning as a A. unit of account. B. medium of exchange. C. store of value. D. measure of value.

C

20. The equilibrium rate of interest in the market for money is determined by the intersection of the A. supply-of-money curve and the asset-demand-for-money curve. B. supply-of-money curve and the transactions-demand-for-money curve. C. supply-of-money curve and the total-demand-for-money curve. D. investment-demand curve and the total-demand-for-money curve.

C

24. Refer to the diagram of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the A. transactions demand for money. B. direct or positive relationship between bond prices and interest rates. C. asset demand for money. D. wealth or real-balances effect.

C

27. Discretionary fiscal policy refers to A. any change in government spending or taxes that destabilizes the economy. B. the authority that the president has to change personal income tax rates. C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. D. the changes in taxes and transfers that occur as GDP changes.

C

30. Discretionary fiscal policy is so named because it A. is undertaken at the option of the nation's central bank. B. occurs automatically as the nation's level of GDP changes. C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. D. is invoked secretly by the Council of Economic Advisers.

C

32. Contractionary fiscal policy is so named because it A. involves a contraction of the nation's money supply. B. necessarily reduces the size of government. C. is aimed at reducing aggregate demand and thus achieving price stability. D. is expressly designed to expand real GDP.

C

35. If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by A. increasing government spending by $25 billion. B. increasing government spending by $80 billion. C. decreasing taxes by $25 billion. D. decreasing taxes by $100 billion.

C

41. Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward A. an equality of tax receipts and government expenditures. B. an excess of tax receipts over government expenditures. C. an excess of government expenditures over tax receipts. D. a reduction of subsidies and transfer payments and an increase in tax rates.

C

44. In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should A. encourage personal saving by increasing the interest rate on government bonds. B. decrease government expenditures. C. reduce tax rates and/or increase government spending. D. discourage private investment by increasing corporate income taxes.

C

6. On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by A. a line parallel to the horizontal axis. B. a vertical line. C. a downsloping line or curve from left to right. D. an upsloping line or curve from left to right.

C

9. Which of the following statements is correct? Other things equal, A. a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. B. a decline in the interest rate will shift the asset demand curve for money to the right but leave the total money demand curve unchanged. C. deflation will shift both the transactions demand curve for money and the total money demand curve to the left. D. inflation will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged.

C

A. nominal GDP decreases and the interest rate decreases B. nominal GDP increases and the interest rate decreases C. nominal GDP decreases and the interest rate increases D. nominal GDP increases and the interest rate increases

D

21. If the demand for money and the supply of money both decrease, the equilibrium A. interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. B. quantity of money and the equilibrium interest rate will both increase. C. quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. D. quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.

D

23. If, in the market for money, the amount of money supplied exceeds the amount of money households and businesses want to hold, the interest rate will A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money.

D

31. Expansionary fiscal policy is so named because it A. involves an expansion of the nation's money supply. B. necessarily expands the size of government. C. is aimed at achieving greater price stability. D. is designed to expand real GDP.

D

36. An economist who favored expanded government would recommend A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

D

38. If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by A. reducing government expenditures by $12 billion. B. reducing government expenditures by $60 billion. C. increasing taxes by $15 billion. D. increasing taxes by $20 billion.

D

42. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A congressional proposal to incur a federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in federal tax rates on personal and corporate income.

D

46. An appropriate fiscal policy for severe demand-pull inflation is A. an increase in government spending. B. depreciation of the dollar. C. a reduction in interest rates. D. a tax rate increase.

D

47. In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will A. shift the AD curve to the right. B. increase the equilibrium GDP. C. not affect the AD curve. D. shift the AD curve to the left.

D

49. Which of the following represents the most contractionary fiscal policy? A. a $30 billion tax cut B. a $30 billion increase in government spending C. a $30 billion tax increase D. a $30 billion decrease in government spending.

D

50. A contractionary fiscal policy is shown as a A. rightward shift in the economy's aggregate demand curve. B. rightward shift in the economy's aggregate supply curve. C. movement along an existing aggregate demand curve. D. leftward shift in the economy's aggregate demand curve.

D