Macroeconomics Chapter 21 Test 3

If the multiplier is 5, then the MPC is 0.05. 0.5. 0.6. 0.8.

0.8.

Refer to Figure 21-1. There is an excess demand for money at an interest rate of Figure 21-1 2 percent. 3 percent. 4 percent. None of the above is correct.

2 percent

If the stock market crashes, then aggregate demand increases, which the Fed could offset by increasing the money supply. aggregate demand increases, which the Fed could offset by decreasing the money supply. aggregate demand decreases, which the Fed could offset by increasing the money supply. aggregate demand decreases, which the Fed could offset by decreasing the money supply.

aggregate demand decreases, which the Fed could offset by increasing the money supply.

Tax cuts and increases in government expenditures shift aggregate demand right. and increases in government expenditures shift aggregate demand left. shift aggregate demand right while increases in government expenditures shift aggregate demand left. shift aggregate demand left while increases in government expenditures shift aggregate demand right.

and increases in government expenditures shift aggregate demand right.

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.

The Federal Funds rate is the interest rate banks charge each other for short-term loans. the Fed charges depository institutions for short-term loans. the Fed pays on deposits. interest rate on 3 month Treasury bills.

banks charge each other for short-term loans

People hold money primarily because it has a guaranteed nominal return. serves as a store of value. can directly be used to buy goods and services. functions as a unit of account.

can directly be used to buy goods and services.

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the multiplier effect. crowding-out effect. accelerator effect. Ricardian equivalence effect.

crowding-out effect.

The interest-rate effect depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. is responsible for the downward slope of the money-demand curve. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.

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

extra income that a household consumes rather than saves.

Permanent tax cuts shift the AD curve farther to the right than do temporary tax cuts. not as far to the right as do temporary tax cuts. farther to the left than do temporary tax cuts. not as far to the left as do temporary tax cuts.

farther to the right than do temporary tax cuts.

In recent years, the Federal Reserve has conducted policy by setting a target for the size of the money supply. growth rate of the money supply. federal funds rate. discount rate.

federal funds rate.

Fiscal policy refers to the idea that aggregate demand is affected by changes in the money supply. government spending and taxes. trade policy. All of the above are correct.

government spending and taxes.

Supply-side economists focus more than other economists on how fiscal policy affects consumption. the multiplier affect of fiscal policy. how fiscal policy affects aggregate supply. the money supply.

how fiscal policy affects aggregate supply.

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

increases, so the quantity of money demanded decreases.

The interest-rate effect depends on the idea that increases in interest rates increase the quantity of money demanded. depends on the idea that increases in interest rates increase the quantity of money supplied. is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

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

If the government cuts the tax rate, workers get to keep less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left. more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right. more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

Government purchases are said to have a multiplier effect on aggregate supply. multiplier effect on aggregate demand. liquidity-enhancing effect on aggregate supply. liquidity-enhancing effect on aggregate demand.

multiplier effect on aggregate demand.

Other things the same, automatic stabilizers tend to raise expenditures during expansions and recessions. lower expenditures during expansions and recessions. raise expenditures during recessions and lower expenditures during expansions. raise expenditures during expansions and lower expenditures during recessions.

raise expenditures during recessions and lower expenditures during expansions.

Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the aggregate-demand curve to the right by $150 billion. right by $70 billion. right by $30 billion. None of the above is correct.

right by $30 billion.

Assume the MPC is 0.75. Assume there is a multiplier effect and that the total crowding-out effect is $6 billion. An increase in government purchases of $10 billion will shift aggregate demand to the left by $24 billion. left by $36 billion. right by $34 billion. right by $36 billion.

right by $34 billion

If the interest rate is below the Fed's target, the Fed would buy bonds to increase the money supply. buy bonds to decrease the money supply. sell bonds to increase the money supply. sell bonds to decrease the money supply.

sell bonds to decrease the money supply.

Refer to Figure 21-1. At an interest rate of 4 percent, there is an excess Figure 21-1 demand for money equal to the distance between points a and b. demand for money equal to the distance between points b and c. supply of money equal to the distance between points a and b. supply of money equal to the distance between points b and c.

supply of money equal to the distance between points a and b.

Which of the following is not an automatic stabilizer? the minimum wage the unemployment compensation system the federal income tax the welfare system

the minimum wage