Exam 35: The Influence of Monetary and Fiscal Policy on Aggregate Demand

A) By themselves,both the change in output and the change in the interest rate increase desired investment.
B) By themselves,both the change in output and the change in the interest rate decrease desired investment.
C) By itself,the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.
D) By itself,the change in output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending.

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C

A) a decrease in the price level reduces the interest rate.
B) an increase in the price level causes investors to move some of their funds overseas.
C) an increase in the price level causes domestic goods to become less expensive relative to foreign goods.
D) a decrease in the price level reduces spending on net exports.

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False

A) an increase in the money supply
B) an increase in taxes
C) an increase in government spending
D) All of the above are correct.

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A) a decrease in the price level
B) a decrease in the number of firms building new factories and buying new equipment
C) an increase in the price level
D) an increase in the number of firms building new factories and buying new equipment

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

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A) increases,interest rates increase,and investment decreases.
B) increases,interest rates decrease,and investment increases.
C) decreases,interest rates increase,and investment increases.
D) decreases,interest rates decrease,and investment decreases.

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A) deposit more money into interest-bearing accounts,and the interest rate will fall.
B) deposit more money into interest-bearing accounts,and the interest rate will rise.
C) withdraw money from interest-bearing accounts,and the interest rate will fall.
D) withdraw money from interest-bearing accounts,and the interest rate will rise.

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A) 1 + MPC + MPC ² + MPC ³ = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96.
B) 1 + MPC + MPC ² + MPC ³ = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3.
C) 1 + MPC + MPC ² + MPC ³ = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3.
D) 1 + MPC + MPC ² + MPC ³ = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5.

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A) 1.18.
B) 3.33.
C) 6.67.
D) 8.5.

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A) government purchases $\uarr\Rightarrow$ GDP $\uarr\Rightarrow$ supply of money $\downarrow\Rightarrow$ equilibrium interest rate $\uarr\Rightarrow$ quantity of goods and services demanded $\downarrow$
B) government purchases $\downarrow\Rightarrow$ GDP $\downarrow\Rightarrow$ demand for money $\downarrow\Rightarrow$ equilibrium interest rate $\downarrow\Rightarrow$ quantity of goods and services demanded $\downarrow$
C) government purchases $\uarr\Rightarrow$ GDP $\uarr\Rightarrow$ demand for money $\uarr\Rightarrow$ equilibrium interest rate $\uarr\Rightarrow$ quantity of goods and services demanded $\downarrow$
D) taxes $\uarr\Rightarrow$ GDP $\downarrow\Rightarrow$ demand for money $\downarrow\Rightarrow$ equilibrium interest rate $\uarr\Rightarrow$ quantity of goods and services demanded $\downarrow$

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When the money supply increases,the interest rate falls.As the interest rate falls people will want to spend more and firms will want to build more factories and other capital goods.This increase in aggregate demand happens for any given price level,so aggregate demand shifts right.

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A) proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B) monetary policy works through changes in interest rates,and the Fed does not have the ability to change interest rates quickly.
C) changes in interest rates primarily influence consumption spending,and households make consumption plans far in advance.
D) changes in interest rates primarily influence investment spending,and firms make investment plans far in advance.

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A) Output is determined by the amount of capital,labor,and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
B) Output is determined by the amount of capital,labor,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
C) Output is determined by the amount of capital,labor,and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust.
D) Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

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A) the price level falls or the money supply falls.
B) the price level falls or the money supply rises.
C) the price level rises or the money supply falls.
D) the price level rises or the money supply rises.

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