Chapter 21

According to liquidity preference theory, a decrease in the price level shifts the a. money demand curve leftward, so the interest rate decreases. b. money demand curve rightward, so the interest rate decreases. c. money demand curve leftward, so the interest rate increases. d. money demand curve rightward, so the interest rate increases.

a

Assume the MPC is 0.72. The multiplier is a. 3.57. b. 2.57. c. 1.39. d. 4.53.

a

For the following questions, use the diagram below: Figure 34-7. Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct.

a

A goal of monetary policy and fiscal policy is to a. enhance the shifts in aggregate demand and thereby increase economic growth b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. offset the shifts in aggregate demand and thereby eliminate unemployment.

b

According to liquidity preference theory, the opportunity cost of holding money is a. the difference between the inflation rate and the interest rate on bonds. b. the interest rate on bonds. c. the cost of converting bonds to a medium of exchange. d. the inflation rate.

b

Which of the following reduces the interest rate? a. an increase in government expenditures and a decrease in the money supply b. a decrease in government expenditures and an increase in the money supply c. an increase in government expenditures and an increase in the money supply d. a decrease in government expenditures and a decrease in the money supply

b

According to liquidity preference theory, if the price level decreases, then a. the interest rate rises because money supply shifts right. b. the interest rate rises because money supply shifts left. c. the interest rate falls because money demand shifts left. d.the interest rate falls because money demand shifts right

c

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

c

Which of the following events would shift money demand to the right? a. neither an increase in the interest rate nor an increase in the price level b. an increase in the interest rate, but not an increase in the price level c. an increase in the price level, but not an increase in the interest rate d. an increase in the interest rate or an increase in the price level

c

The Federal Open Market Committee is a. in charge of tax collection. b. the group that sets the amount of government spending. c. the group that reviews income assistance programs. d. the group at the Federal Reserve that sets monetary policy.

d