macro ch 20, 21

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

B) 0.75 and the multiplier is 4.

Which of the following correctly explains the crowding-out effect?

B) An increase in government expenditures increases the interest rate and so reduces investment spending.

Which of the following is correct concerning recessions? A) They come at fairly regular and predictable intervals. B) They are associated with comparatively large declines in investment spending. C) They are any period when real GDP growth is less than average. D) They tend to be associated with falling unemployment rates.

B) They are associated with comparatively large declines in investment spending.

The classical dichotomy and monetary neutrality are represented graphically by

B) a vertical long-run aggregate-supply curve.

Automatic stabilizers

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

When taxes increase, consumption

B) decreases as shown by a shift of the aggregate demand curve to the left.

Keynes explained that recessions and depressions occur because of

B) inadequate aggregate demand.

In the short run, a decrease in the money supply causes interest rates to

B) increase, and aggregate demand to shift left.

An increase in the price level and a reduction in output would result from

B) natural disasters such as hurricanes, floods, and droughts.

Stagflation exists when prices

B) rise and output falls.

Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates? A) U.S. citizens decide to hold more foreign bonds. B) People choose to hold more currency. C) You decide to purchase a new oven for your cookie factory. D) All of the above are correct.

D) All of the above are correct.

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will

D) decrease and the quantity of money demanded will increase.

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

D) decreased, so it would decrease production.

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

D) employment and production fall.

Which among the following assets is the most liquid?

D) funds in a checking account

The long-run effect of an increase in government spending is to raise

D) the price level and leave real output unchanged.

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run

D) the price level will fall, and real GDP might rise, fall, or stay the same.

Using the Theory of Liquidity Preferene, which of the following events would shift money demand to the right?

A) an increase in the price level

When the dollar appreciates, U.S.

A) exports decrease, while imports increase.

When the money supply increases

A) interest rates fall and so aggregate demand shifts right.

Keynes argued that

A) irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.

The aggregate demand and aggregate supply graph has the

A) quantity of output on the horizontal axis. Output is best measured by real GDP.

The aggregate quantity of goods and services demanded changes as the price level rises because

A) real wealth falls, interest rates rise, and the dollar appreciates.

Most economists use the aggregate demand and aggregate supply model primarily to analyze

A) short-run fluctuations in the economy.

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.

If the MPC = 0.85, then the government purchases multiplier is about

C) 6.67.

Which of the following would cause prices and real GDP to rise in the short run?

C) aggregate demand shifts right

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this

C) both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting farther.

Monetary policy

C) can be described either in terms of the money supply or in terms of the interest rate.

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to

C) decrease consumption, shown by shifting the aggregate-demand curve to the left.

Other things the same, when the price level falls, interest rates

C) fall, so firms increase investment.

Supply-side economists focus more than other economists on

C) how fiscal policy affects aggregate supply.

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

C) institute an investment tax credit or increase the money supply

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level

C) is lower and output is the same as the original long-run equilibrium.

The interest-rate effect

C) is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

The long-run aggregate supply curve shifts right if

C) the capital stock increases.