macroeconomics ch 16

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For the U.S. economy, money holdings are a

Answer

 

a.

small part of household wealth, and so the interest-rate effect is small.

 

b.

small part of household wealth, and so the wealth effect is small.

 

c.

large part of household wealth, and so the wealth effect is large.

 

d.

large part of household wealth, and so the interest-rate effect is large.

 

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Answer

 

a.

$283 billion and $254.7 billion

 

b.

$300 billion and $270 billion

 

c.

$283 billion and $283 billion

 

d.

$300 billion and $300 billion

 

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Answer

 

a.

the real-wage effect

 

b.

the exchange-rate effect

 

c.

the interest-rate effect

 

d.

the wealth effect

 

 

According to liquidity preference theory, investment spending would rise if the price level

Answer

 

a.

fell, making the interest rate fall.

 

b.

rose, making the interest rate rise.

 

c.

fell, making the interest rate rise.

 

d.

rose, making the interest rate fall.

‘

The Employment Act of 1946 states that

Answer

 

a.

the Fed should use monetary policy only to control the rate of inflation.

 

b.

the government should promote full employment and production.

 

c.

the government should periodically increase the minimum wage and unemployment insurance benefits.

 

d.

All of the above are correct.

 

According to classical macroeconomic theory,

Answer

 

a.

output is determined by the supplies of capital and labor and the available production technology.

 

b.

for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

 

c.

given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money.

 

d.

All of the above are correct.

 

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

Answer

 

a.

increase, and aggregate demand to shift left.

 

b.

decrease, and aggregate demand to shift right.

 

c.

decrease, and aggregate demand to shift left.

 

d.

increase, and aggregate demand to shift right.

 

It is likely that a constitutional amendment that required the government always to run a balanced budget would 

Answer

 

a.

contribute to a more stable level of output.

 

b.

mitigate the crowding-out effect.

 

c.

eliminate the economy’s automatic stabilizers.

 

d.

All of the above are correct.

 

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Answer

 

a.

an increase in government expenditures

 

b.

an increase in net exports

 

c.

an increase in investment spending

 

d.

All of the above are correct.

 

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

Answer

 

a.

0.25 and the multiplier is 4.

 

b.

0.25 and the multiplier is 1 1/3.

 

c.

0.75 and the multiplier is 1 1/3.

 

d.

0.75 and the multiplier is 4.

 

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Answer

 

a.

increase taxes

 

b.

increase the money supply

 

c.

increase government expenditures

 

d.

All of the above are correct.

 

When Congress reduces spending in order to balance the government’s budget, it needs to consider

Answer

 

a.

only the long-run effects on aggregate demand and aggregate supply.

 

b.

only the long-run effects on saving and growth.

 

c.

both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.

 

d.

only the short-run effects on aggregate demand and aggregate supply.

 

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Answer

 

a.

Your aunt puts more money in her savings account.

 

b.

Foreign citizens decide to buy fewer U.S. bonds.

 

c.

You decide to purchase a new oven for your cookie factory.

 

d.

All of the above are correct.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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