Econ 203 (MACRO) Lesson 14 Quiz

3) If the Fed conducts open-market purchases, the money supply... a. decreases and aggregate demand shifts right. b. increases and aggregate demand shifts right. c. decreases and aggregate demand shifts left. d. increases and aggregate demand shifts left.

increases and aggregate demand shifts right.

4) An increase in the MPC... a. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. b. increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. c. decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. d. decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

5) As the MPC gets close to 1, the value of the multiplier approaches... a. 0. b. 1. c. infinity. d. None of the above is correct.

infinity.

1) A policy that results in slow and steady growth of the money supply is an example of... an "easy" monetary policy. b. an "active" monetary policy. c. a "passive" monetary policy. d. a "practical" monetary policy.

a "passive" monetary policy.

7) "Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that... a. the activities of the Federal Reserve's bond traders are irrelevant if the Federal Reserve decides to target an interest rate. b. shifts of the money-supply curve cannot occur if the Federal Reserve decides to target an interest rate. c. changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate. d. the aggregate-demand curve will not shift in response to Federal Reserve actions if the Fed decides to target an interest rate.

changes in monetary policy aimed at contracting aggregate demand can be described either as decreasing the money supply or as raising the interest rate.

8) A surplus or shortage in the money market is eliminated by adjustments in the price level according to... a. liquidity preference theory, but not classical theory. b. classical theory, but not liquidity preference theory. c. neither liquidity preference theory nor classical theory. d. both liquidity preference theory and classical theory.

classical theory, but not liquidity preference theory.

10) If the Fed conducts open-market sales, the money supply... a. increases and aggregate demand shifts left. b. decreases and aggregate demand shifts left. c. increases and aggregate demand shifts right. d. decreases and aggregate demand shifts right.

decreases and aggregate demand shifts left.

2) A tax cut shifts the aggregate demand curve the farthest if... a. the MPC is large and if the tax cut is permanent. b. the MPC is large and if the tax cut is temporary. c. the MPC is small and if the tax cut is temporary. d. the MPC is small and if the tax cut is permanent.

the MPC is large and if the tax cut is permanent.

6) Fiscal policy is determined by... a. the president and Congress and involves changing government spending and taxation. b. the Federal Reserve and involves changing government spending and taxation. c. the Federal Reserve and involves changing the money supply. d. the president and Congress and involves changing the money supply.

the president and Congress and involves changing government spending and taxation.

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

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