Most economists use the aggregate demand and aggregate supply mode primarily to analyze
A. short-fluctuations in the economy
The saying "Money is a veil." means that
D. while nominal variables are the first thing we may observe about about an economy, what's important are the real variables and the forces that determine them
3. The classical model is appropriate for analysis of the economy in the
A. long run, since real and nominal variables are essentially determined separately in the long run
Most economists believe that in the short run
C. real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend
Which of the following would not be included in aggregate demand?
D. government transfer payments such as Social Security payments
Other things the same, an increase in the price level induces people to hold
C. more money, so they lend less, and the interest rate rises
When the price level falls
B. Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes
Aggregate demand shifts left when the government
B. cuts military expenditures
In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
C. both the increased funding for states and the tax cuts
Which of the following shifts aggregate demand to the right?
A. both an investment tax credit and a decrease in income tax rates
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
D. the interest-rate effect
Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?
A. the exchange-rate effect
Which particular interest rate do we attempt to explain using the theory of liquidity preference?
B. both the nominal interest rate and the real interest rate
If expected inflation is constant, then when the nominal interest rate increases, the real interest rate
D. increases by the change in the nominal interest rate
Refer to 15 - Graph
Refer to 16 - Graph
Refer to 17 - Graph
Refer to 18 - Graph
In the long run, fiscal policy primarily affects
C. saving, investment, and growth. In the short run, it affects primarily aggregate demand
Fiscal policy refers to the idea that aggregate demand is affected by changes in
B. government spending and taxes
The marginal propensity to consume (MPC) is defined as the fraction of
B. extra income that a household consumes rather than saves
The economy goes into recession. Which of the following lists contains lists things policymakers could do to try to end the recession?
B. increase the money supply, decrease taxes, increase government spending
Which of the following likely occurs when households and firms are pessimistic?
B. The unemployment rate increases
Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must
C. decrease the money supply, which will move output farther from its long-run level
Which of the following rises during recession?
B. layoffs but not consumer spending
In 2001, the United States was in recession. Which of the following things would you not expect to have happened?
B. increased investment spending
The curve that shows the quantity of goods and services that firms produce and sell
D. as it relates to the overall price level is called the agregate-supply curve
Which of the following adjust to bring aggregate supply and demand into balance?
B. the price level and real output
Other things the same, as the price level falls,
A. the dollar depreciates
Other things the same, as the price level rises,
C. people feel less wealthy
Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level
C. decreases the interest rate
Which of the following would both shift aggregate demand right?
C. government expenditures increase and the money supply increases
Which of the following both shift aggregate demand right?
B. net exports rise for some reason other than a price change and the money supply rises
Aggregate demand shifts right if
A. taxes fall and shifts left if stock prices fall
Aggregate demand shifts left if
D. taxes rise and shifts left if stock prices fall
Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate-demand curve is correct?
A. The exchange-rate effect is relatively small because exports and imports are a small part of real GDP
According to John Maynard Keynes,
C. the interest rate adjusts to balance the supply of, and demand for, money
Monetary policy
A. can be described either in terms of the money supply or in terms of the interest rate
The opportunity cost of holding money
C. increases when the interest rate increases, so people desire to hold less of it
See Graph
See Graph
See Graph
The multiplier for changes in government spending is calculated as
C. 1/(1-MPC)
If the MPC = 3/5, then the government purchases multiplier is
A. 5/2
The principal lag for monetary policy
C. is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it
The principal reason that monetary policy has lags is that it takes a long time for
A. changes in the interest rate to change aggregate demand
Opponents of using policy to stabilize the economy generally believe that
D. economic conditions can easily change between the start of policy action and when it takes effect
Which of the following is correct?
D. Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag
Means-tested government benefits base benefits on
B. a household's wealth and are a disincentive to save