8/5/2021
Quiz in Chap 21: Attempt review
Dashboard / My courses / UCB-ECON 122-61645 / FINALS / Quiz in Chap 21
Started on Thursday, August 5, 2021, 12:17 PM
State Finished
Completed on Thursday, August 5, 2021, 12:30 PM
Time taken 12 mins 50 secs
Points 48.00/50.00
Grade 96.00 out of 100.00
Question 1
Correct
1.00 points out of 1.00
The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​
Select one:
True
False 
The correct answer is 'False'.
Question 2
Correct
1.00 points out of 1.00
Critics of stabilization policy argue that
a.
policy does not affect aggregate demand.
b. policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.
c.

Correct
policy affects aggregate demand with a lag, but the effects are short-lived.
d. policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived.
The correct answer is: policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.
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Quiz in Chap 21: Attempt review
Question 3
Correct
1.00 points out of 1.00
Scenario 34-2. The following facts apply to a small economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?
a.
An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding-out effect.
b. A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect.
c.
An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding-out effect.
d. A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.

Correct
The correct answer is: A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.
Question 4
Correct
1.00 points out of 1.00
An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate
demand.
Select one:
True 
False
The correct answer is 'True'.
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Quiz in Chap 21: Attempt review
Question 5
Correct
1.00 points out of 1.00
If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.
Select one:
True 
False
The correct answer is 'True'.
Question 6
Correct
1.00 points out of 1.00
In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of
pessimism about the future of the economy.
Select one:
True 
False
The correct answer is 'True'.
Question 7
Correct
1.00 points out of 1.00
An increase in the money supply decreases the interest rate in the short run.
Select one:
True 
False
The correct answer is 'True'.
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Quiz in Chap 21: Attempt review
Question 8
Correct
1.00 points out of 1.00
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
a.
The real-wage effect
b. The wealth effect
c.
The exchange-rate effect
d. The interest-rate effect

Correct

Correct
The correct answer is: The interest-rate effect
Question 9
Correct
1.00 points out of 1.00
Suppose there is a tax decrease. To stabilize output, the Federal Reserve could
a.
increase government spending.
b. increase the money supply.
c.
decrease government spending.
d. decrease the money supply.
The correct answer is: decrease the money supply.
Question 10
Correct
1.00 points out of 1.00
In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift
the money demand curve.
Select one:
True 
False
The correct answer is 'True'.
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Quiz in Chap 21: Attempt review
Question 11
Correct
1.00 points out of 1.00
Other things equal, the higher the price level, the higher is the real wealth of households.
Select one:
True
False 
The correct answer is 'False'.
Question 12
Correct
1.00 points out of 1.00
Figure 34-4
Refer to Figure 34-4.Which of the following events could explain an increase in the equilibrium interest rate from r1 to r3?
a.
An decrease in the number of firms building new factories and buying new equipment
b. An decrease in the price level
c.
A increase in the price level

Correct
d. A increase in the number of firms building new factories and buying new equipment
The correct answer is: A increase in the price level
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Quiz in Chap 21: Attempt review
Question 13
Correct
1.00 points out of 1.00
Which of the following events shifts aggregate demand rightward?
a.
An increase in government expenditures, but not a change in the price level

Correct
b. An increase in government expenditures or a decrease in the price level
c.
A decrease in the price level, but not a change in government expenditures
d. A decrease in government expenditures or an increase in the price level
The correct answer is: An increase in government expenditures, but not a change in the price level
Question 14
Correct
1.00 points out of 1.00
The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.
Select one:
True
False 
The correct answer is 'False'.
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Quiz in Chap 21: Attempt review
Question 15
Correct
1.00 points out of 1.00
Figure 34-5
Refer to Figure 34-5. An increase in taxes will
a.
have no effect on aggregate demand.
b. shift aggregate demand from AD2 to AD1.
c.
shift aggregate demand from AD2 to AD3.

Correct
d. cause movement from point A to point B along AD2.
The correct answer is: shift aggregate demand from AD2 to AD3.
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Quiz in Chap 21: Attempt review
Question 16
Correct
1.00 points out of 1.00
Figure 34-4
Refer to Figure 34-4.Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then
a.
bond issuers and banks will respond by lowering the interest rates they offer.
b. the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
c.
people will respond by selling interest-bearing bonds.

Correct
d. in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.
The correct answer is: people will respond by selling interest-bearing bonds.
Question 17
Correct
1.00 points out of 1.00
During recessions, the government tends to run a budget deficit.
Select one:
True 
False
The correct answer is 'True'.
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Quiz in Chap 21: Attempt review
Question 18
Correct
1.00 points out of 1.00
When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting
the money supply accordingly.
Select one:
True 
False
The correct answer is 'True'.
Question 19
Correct
1.00 points out of 1.00
During recessions, taxes tend to
a.
rise and thereby decrease aggregate demand.
b. fall and thereby decrease aggregate demand.
c.
fall and thereby increase aggregate demand.

Correct
d. rise and thereby increase aggregate demand.
The correct answer is: fall and thereby increase aggregate demand.
Question 20
Correct
1.00 points out of 1.00
For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.
Select one:
True
False 
The correct answer is 'False'.
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Quiz in Chap 21: Attempt review
Question 21
Correct
1.00 points out of 1.00
When the Fed buys government bonds, the reserves of the banking system
a.
decrease, so the money supply decreases.
b. increase, so the money supply decreases.
c.
decrease, so the money supply increases.
d. increase, so the money supply increases.

Correct

Correct
The correct answer is: increase, so the money supply increases.
Question 22
Correct
1.00 points out of 1.00
Scenario 34-1. Take the following information as given for a small economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
Refer to Scenario 34-1. The multiplier for this economy is
a.
1.53.
b. 4.00.
c.
2.85.
d. 7.00.
The correct answer is: 4.00.
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Quiz in Chap 21: Attempt review
Question 23
Correct
1.00 points out of 1.00
If the MPC is 3/5 then the multiplier is
a.
1.67, so a $100 increase in government spending increases output by $166.67.
b. 4, so a $100 increase in government spending increases aggregate demand by $400.
c.
2.5, so a $100 increase in government spending increases aggregate demand by $250.

Correct
d. 1.5, so a $100 increase in government spending increases output by $150.
The correct answer is: 2.5, so a $100 increase in government spending increases aggregate demand by $250.
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Question 24
Correct
1.00 points out of 1.00
Figure 34-2
(a) The Money Market
(b) The Aggregate Demand Curve
Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:
a.
A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to
r2; and this increase in r causes Y to decrease from Y1 to Y2.
b. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to 
Correct
increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
c.
The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r
to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
d. An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to
r1; and this decrease in r causes Y to decrease from Y1 to Y2.
The correct answer is: An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to
increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
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Quiz in Chap 21: Attempt review
Question 25
Correct
1.00 points out of 1.00
If the marginal propensity to consume is 6/7, then the multiplier is 7.
Select one:
True 
False
The correct answer is 'True'.
Question 26
Correct
1.00 points out of 1.00
During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.
Select one:
True 
False
The correct answer is 'True'.
Question 27
Correct
1.00 points out of 1.00
Liquidity preference theory is most relevant to the
a.
long run and supposes that the price level adjusts to bring money supply and money demand into balance.
b. long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
c.
short run and supposes that the price level adjusts to bring money supply and money demand into balance.
d. short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Correct
The correct answer is: short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
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Quiz in Chap 21: Attempt review
Question 28
Correct
1.00 points out of 1.00
Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate
demand more,
a.
the larger the MPC and the weaker the influence of income on money demand.

Correct
b. the smaller the MPC and the weaker the influence of income on money demand.
c.
the smaller the MPC and the stronger the influence of income on money demand.
d. the larger the MPC and the stronger the influence of income on money demand.
The correct answer is: the larger the MPC and the weaker the influence of income on money demand.
Question 29
Correct
1.00 points out of 1.00
Unemployment insurance and welfare programs work as automatic stabilizers.
Select one:
True 
False
The correct answer is 'True'.
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Question 30
Correct
1.00 points out of 1.00
Scenario 34-1. Take the following information as given for a small economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into a(n)
a.
$800 increase in aggregate demand when the crowding-out effect is taken into account.
b. $800 increase in aggregate demand in the absence of the crowding-out effect.
c.

Correct

Correct
$570 increase in aggregate demand when the crowding-out effect is taken into account.
d. $1,400 increase in aggregate demand in the absence of the crowding-out effect.
The correct answer is: $800 increase in aggregate demand in the absence of the crowding-out effect.
Question 31
Correct
1.00 points out of 1.00
Suppose a decrease in interest rates causes falling unemployment and rising output. To counter this, the Federal Reserve would
a.
increase the money supply.
b. increase government spending.
c.
decrease government spending.
d. decrease the money supply.
The correct answer is: decrease the money supply.
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Quiz in Chap 21: Attempt review
Question 32
Correct
1.00 points out of 1.00
For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is
large relative to wealth in most other countries.
Select one:
True
False 
The correct answer is 'False'.
Question 33
Incorrect
0.00 points out of 1.00
A significant lag for monetary policy is the time it takes for a change in the money supply to change the economy. A significant lag for fiscal policy
is the time it takes to pass legislation authorizing it.
Select one:
True
False 
The correct answer is 'True'.
Question 34
Correct
1.00 points out of 1.00
The wealth effect along an aggregate-demand curve stems from the idea that a higher price level
a.
increases the real value of households' money holdings.
b. decreases the real value of the domestic currency in foreign-exchange markets.
c.
decreases the real value of households' money holdings.

Correct
d. increases the real value of the domestic currency in foreign-exchange markets.
The correct answer is: decreases the real value of households' money holdings.
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Quiz in Chap 21: Attempt review
Question 35
Correct
1.00 points out of 1.00
In which of the following cases would the quantity of money demanded be smallest?
a.
r = 0.06, P = 1.0

Correct

Correct
b. r = 0.06, P = 1.2
c.
r = 0.04, P = 1.2
d. r = 0.05, P = 1.0
The correct answer is: r = 0.06, P = 1.0
Question 36
Correct
1.00 points out of 1.00
Which of the following illustrates how the investment accelerator works?
a.
An increase in government expenditures increases aggregate spending so that Hardware Plus finds it profitable to build
more new stores.
b. An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Hardware Plus
increases.
c.
An increase in government expenditures increases the interest rate so that the Hardware Plus chain of hardware stores decides to build
fewer new stores.
d. An increase in government expenditures decreases the interest rate so that Hardware Plus decides to build more new stores.
The correct answer is: An increase in government expenditures increases aggregate spending so that Hardware Plus finds it profitable to build
more new stores.
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Question 37
Correct
1.00 points out of 1.00
Figure 34-7
(a) The Money Market
(b) The Aggregate Demand Curve
Refer to Figure 34-7. Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would
shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3with crowding out. Also, suppose the
horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is
a.
$20 billion.

Correct
b. $30 billion.
c.
$75 billion.
d. $40 billion.
The correct answer is: $20 billion.
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Quiz in Chap 21: Attempt review
Question 38
Correct
1.00 points out of 1.00
According to liquidity preference theory, if the price level decreases, then
a.
the interest rate falls because money demand shifts left.

Correct
b. the interest rate falls because money demand shifts right.
c.
the interest rate rises because money supply shifts left.
d. the interest rate rises because money supply shifts right.
The correct answer is: the interest rate falls because money demand shifts left.
Question 39
Correct
1.00 points out of 1.00
​ any economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably
M
make the business cycle more volatile.
Select one:
True 
False
The correct answer is 'True'.
Question 40
Correct
1.00 points out of 1.00
Shifts in aggregate demand affect the price level in
a.
the short run but not in the long run.
b. neither the short nor long run.
c.
the long run but not in the short run.
d. both the short and long run.

Correct
The correct answer is: both the short and long run.
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Quiz in Chap 21: Attempt review
Question 41
Correct
1.00 points out of 1.00
If the multiplier is 3, then the MPC is
a.
4/3.
b. 3/4.
c.
2/3.

Correct

Correct
d. 1/3.
The correct answer is: 2/3.
Question 42
Correct
1.00 points out of 1.00
Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?
a.
As the money supply increases, the interest rate falls, so spending rises.
b. As the money supply increases, the interest rate rises, so spending falls.
c.
As the price level increases, the interest rate rises, so spending falls.
d. As the price level increases, the interest rate falls, so spending rises.
The correct answer is: As the price level increases, the interest rate rises, so spending falls.
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Question 43
Correct
1.00 points out of 1.00
With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect,
interest-rate effect, and exchange-rate effect from most important to least important?
a.
Interest-rate effect, exchange-rate effect, wealth effect

Correct
b. Exchange-rate effect, interest-rate effect, wealth effect
c.
Wealth effect, exchange-rate effect, interest-rate effect
d. Interest-rate effect, wealth effect, exchange-rate effect
The correct answer is: Interest-rate effect, exchange-rate effect, wealth effect
Question 44
Correct
1.00 points out of 1.00
The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.
Select one:
True 
False
The correct answer is 'True'.
Question 45
Correct
1.00 points out of 1.00
Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little
or no control.
Select one:
True 
False
The correct answer is 'True'.
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Question 46
Incorrect
0.00 points out of 1.00
The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their
spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates
a.
the multiplier effect.
b. the Fisher effect.
c.
the wealth effect.

Incorrect
d. the crowding-out effect.
The correct answer is: the multiplier effect.
Question 47
Correct
1.00 points out of 1.00
Changes in the interest rate
a.
shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy.
b. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price 
Correct
level.
c.
shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
d. do not shift aggregate demand.
The correct answer is: shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price
level.
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Question 48
Correct
1.00 points out of 1.00
The multiplier is computed as MPC / (1 - MPC).
Select one:
True
False 
The correct answer is 'False'.
Question 49
Correct
1.00 points out of 1.00
According to the liquidity preference theory, an increase in the overall price level of 10 percent
a.
increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded
unchanged.
b. decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded
unchanged.
c.
decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded.
d. increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.

Correct
The correct answer is: increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
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Quiz in Chap 21: Attempt review
Question 50
Correct
1.00 points out of 1.00
A goal of monetary policy and fiscal policy is to
a.
offset shifts in aggregate demand and thereby stabilize the economy.

Correct
b. offset the shifts in aggregate demand and thereby eliminate unemployment.
c.
enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
d. enhance the shifts in aggregate demand and thereby increase economic growth.
The correct answer is: offset shifts in aggregate demand and thereby stabilize the economy.
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