Question 1

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

Fiscal policy specifically refers to changes in government spending and taxes to influence aggregate demand, while monetary policy (answer A) refers to changes in the money supply. Trade policy (answer C) may have an indirect impact on aggregate demand, but it is not included under the umbrella of fiscal policy. Thus, answer B is the most accurate.

Question 2

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

Skeptical economists argue that the central bank still has other tools available to stimulate the economy, such as quantitative easing and forward guidance, even after the interest rate hits the zero lower bound. Therefore, they do not believe that a liquidity trap is a significant concern.

Question 3

If the MPC = 0.85,then the government purchases multiplier is about

Accepted Answer

The answer of If the MPC = 0.85,then the government...

Question 4

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

When the interest rates are close to zero, and monetary policy can no longer stimulate the economy, it is referred to as a liquidity trap. In this situation, businesses and households hold onto their cash instead of investing or spending it, leading to a situation where the demand for goods and services is extremely low.

Question 5

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

The answer of Which of the following sequences best explains...

Question 6

Consider the following sequence of events: price level$\uparrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\uparrow$
$\implies$quantity of goods and services demanded $\downarrow$
This sequence explains why the

Accepted Answer

The answer of Consider the following sequence of events: price...

Question 7

If the multiplier is 6.25,then the MPC is

Accepted Answer

The answer of If the multiplier is 6.25,then the MPC...

Question 8

The multiplier for changes in government spending is calculated as

Accepted Answer

The multiplier for changes in government spending is calculated as 1/(1 - MPC), where MPC is the marginal propensity to consume. This is because a change in government spending will lead to a change in disposable income, which in turn will lead to a change in consumption. The size of the multiplier depends on how much of any additional income people choose to spend (the marginal propensity to consume) versus how much they choose to save. Therefore, the correct choice is B, 1/(1 - MPC).

Question 9

Paul Samuelson,a famous economist,said that

Accepted Answer

The answer of Paul Samuelson,a famous economist,said that
...

Question 10

If the inflation rate is zero,then

Accepted Answer

The answer of If the inflation rate is zero,then
...

Question 11

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

The answer of Which of the following sequences best explains...

Question 12

The marginal propensity to consume (MPC)is defined as the fraction of

Accepted Answer

The MPC is specifically the fraction of extra income that a household consumes rather than saves. Choice A matches this definition.

Question 13

In the long run,fiscal policy primarily affects

Accepted Answer

The answer of In the long run,fiscal policy primarily affects
...

Question 14

During the economic downturn of 2008-2009,the Federal Reserve

Accepted Answer

During the economic downturn of 2008-2009, the Federal Reserve took an unusual step of using open-market operations to purchase mortgages and corporate debt to stabilize the financial system and stimulate the economy. This was a departure from the Fed's normal actions, which usually involve buying and selling of government securities.

Question 15

The multiplier for changes in government spending is calculated as

Accepted Answer

The multiplier for changes in government spending is calculated as 1/(1 - MPC), where MPC is the marginal propensity to consume. This is because a change in government spending will lead to a change in income, which will in turn lead to a change in consumption, and the multiplier captures this ripple effect. Since the multiplier is based on the MPC, which is the fraction of additional income that is consumed, the inverse of (1 - MPC) gives the multiplier. Therefore, choice D is the correct answer.

Question 16

If the multiplier is 2.5,then the MPC is

Accepted Answer

The answer of If the multiplier is 2.5,then the MPC...

Question 17

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Accepted Answer

The answer of In a certain economy,when income is $100,consumer...

Question 18

In the long run,fiscal policy influences

Accepted Answer

Fiscal policy refers to the government's use of taxation and spending to influence the economy. In the long run, fiscal policy can affect saving, investment, and growth. However, in the short run, fiscal policy primarily influences the aggregate demand for goods and services. This can be done through tax cuts, which increase disposable income and encourage spending, or through government spending on infrastructure or other projects that create jobs and increase spending. Therefore, choice B is the best option.

Question 19

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

The multiplier effect formula is:
Multiplier = Change in Real GDP / Initial Change in Spending
Multiplying both sides by the initial change in spending, we get:
Change in Real GDP = Multiplier × Initial Change in Spending
Here, initial change in spending = $145 and multiplier = 6.25.
So, change in real GDP = 6.25 × 145 = $906.25
This implies that, when income increases by $30 from $200 to $230, the increase in consumer spending can be calculated as:
Change in Consumer Spending = Multiplier × Initial Change in Income
= 6.25 × 30
= $187.50
Therefore, the new consumer spending when income is $230 can be calculated as:
New Consumer Spending = Initial Consumer Spending + Change in Consumer Spending
= $145 + $187.50
= $170.20 (rounded to 2 decimal places)
Hence, the best choice is C.

Question 20

If the multiplier is 5,then the MPC is

Accepted Answer

The answer of If the multiplier is 5,then the MPC...

Quiz 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Economists who are skeptical about the relevance of "liquidity traps" argue that

If the MPC = 0.85,then the government purchases multiplier is about

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Consider the following sequence of events: price level $\uparrow$ $\implies$ demand for money $\uparrow$ $\implies$ equilibrium interest rate $\uparrow$ $\implies$ quantity of goods and services demanded $\downarrow$ This sequence explains why the

If the multiplier is 6.25,then the MPC is

The multiplier for changes in government spending is calculated as

Paul Samuelson,a famous economist,said that

If the inflation rate is zero,then

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

The marginal propensity to consume (MPC) is defined as the fraction of

In the long run,fiscal policy primarily affects

During the economic downturn of 2008-2009,the Federal Reserve

The multiplier for changes in government spending is calculated as

If the multiplier is 2.5,then the MPC is

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

In the long run,fiscal policy influences

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

If the multiplier is 5,then the MPC is

Quiz 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Economists who are skeptical about the relevance of "liquidity traps" argue that

If the MPC = 0.85,then the government purchases multiplier is about

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Consider the following sequence of events: price level ↑\uparrow↑ ⟹ \implies⟹ demand for money ↑\uparrow↑ ⟹ \implies⟹ equilibrium interest rate ↑\uparrow↑ ⟹ \implies⟹ quantity of goods and services demanded ↓\downarrow↓ This sequence explains why the

If the multiplier is 6.25,then the MPC is

The multiplier for changes in government spending is calculated as

Paul Samuelson,a famous economist,said that

If the inflation rate is zero,then

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

The marginal propensity to consume (MPC) is defined as the fraction of

In the long run,fiscal policy primarily affects

During the economic downturn of 2008-2009,the Federal Reserve

The multiplier for changes in government spending is calculated as

If the multiplier is 2.5,then the MPC is

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

In the long run,fiscal policy influences

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

If the multiplier is 5,then the MPC is

Consider the following sequence of events: price level $\uparrow$ $\implies$ demand for money $\uparrow$ $\implies$ equilibrium interest rate $\uparrow$ $\implies$ quantity of goods and services demanded $\downarrow$ This sequence explains why the