Question 1

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

Accepted Answer

The answer of Suppose an economy's marginal propensity to consume...

Question 2

Which of the following events shifts aggregate demand rightward?

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The answer of Which of the following events shifts aggregate...

Question 3

Figure 21-6.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs. -Refer to Figure 21-6.Suppose the graphs are drawn to show the effects of an increase in government purchases.If it were not for the increase in r from r₁ to r₂,then

Accepted Answer

The answer of Figure 21-6.On the left-hand graph,MS represents the...

Question 4

Scenario 21-1.Take the following information as given for a small,imaginary economy:
 
-Refer to Scenario 21-1.The multiplier for this economy is

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The answer of Scenario 21-1.Take the following information as given...

Question 5

An increase in government spending initially and primarily shifts

Accepted Answer

When government spending increases, it injects more money into the economy, which leads to increased consumption and investment, and ultimately increases aggregate demand. Therefore, the correct choice is A, as an increase in government spending shifts aggregate demand to the right.

Question 6

Government purchases are said to have a

Accepted Answer

Government purchases have a multiplier effect on aggregate demand as they increase the overall demand for goods and services in the economy. This is because when the government purchases goods and services, it directly increases the total amount of spending in the economy, leading to a ripple effect of increased demand throughout the economy as vendors and suppliers are able to increase their own spending and investment. This increased demand can ultimately lead to higher production, employment, and economic growth.

Question 7

The logic of the multiplier effect applies

Accepted Answer

The multiplier effect refers to the idea that an initial change in spending will lead to a bigger overall change in GDP due to the subsequent rounds of spending by those who receive the initial spending. This applies to any component of GDP, not just government spending.

Question 8

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Accepted Answer

A shift of the money-demand curve to the left (from MD₂ to MD₁) indicates a decrease in money demand. This could be caused by a decrease in people's incomes which would be consistent with the government reducing government spending, as in option B. Option A would result in an increase in people's incomes, leading to an increase in money demand and a shift of the curve to the right. Option C would result in a decrease in interest rates, which would increase demand for money and shift the curve to the right.

Question 9

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. 
-Refer to Figure 21-5.What is measured along the vertical axis of the graph?

Accepted Answer

The vertical axis of the graph measures the interest rate.

Question 10

A decrease in government spending initially and primarily shifts

Accepted Answer

A decrease in government spending leads to a reduction in government demand for goods and services. This, in turn, reduces the demand for goods and services in the overall economy, leading to a leftward shift in the aggregate demand curve. As a result, the equilibrium output and price level decrease.

Question 11

Scenario 21-1.Take the following information as given for a small,imaginary economy:
 
-Refer to Scenario 21-1.For this economy,an initial increase of $500 in net exports translates into a

Accepted Answer

The answer of Scenario 21-1.Take the following information as given...

Question 12

Figure 21-6.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs. -Refer to Figure 21-6.Suppose the multiplier is 5 and the government increases its purchases by $10 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 AD₃ with crowding out.Also,suppose the horizontal distance between the curves AD₁ and AD₃ is $20 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

The extent of crowding out is equal to the difference in the total shift in AD with and without crowding out, which is $20 billion ($13 billion - $11 billion).

Question 13

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Accepted Answer

The multiplier effect tends to make aggregate demand shift further to the right than the amount by which government expenditures increase. This is because the increase in government spending leads to an increase in income, which in turn leads to an increase in consumption spending and a further increase in aggregate demand. The crowding-out effect, on the other hand, tends to offset some of the initial increase in aggregate demand by reducing private investment, while the interest-rate and exchange-rate effects primarily impact the composition of demand rather than the overall level of demand.

Question 14

Figure 21-6.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs. -Refer to Figure 21-6.Suppose the multiplier is 3 and the government increases its purchases by $25 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 AD₃ with crowding out.Finally,assume the horizontal distance between the curves AD₁ and AD₃ is $30 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

The initial shift in AD from AD₁ to AD₂ due to government purchases of $25 billion would have resulted in an increase in output and price level. However, the crowding out effect reduces the shift in AD from AD₁ to AD₃ by $30 billion. Therefore, the actual shift in AD due to the government purchases is $45 billion ($25 billion - $30 billion). This means that there is crowding out of $30 billion.

Question 15

Scenario 21-1.Take the following information as given for a small,imaginary economy:
 
-Refer to Scenario 21-1.The marginal propensity to consume for this economy is

Accepted Answer

The answer of Scenario 21-1.Take the following information as given...

Question 16

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Accepted Answer

The formula for the multiplier involves an infinite geometric series, where each successive round of spending leads to a smaller impact on GDP. By simplifying this series, we can arrive at the familiar form of the multiplier as 1/(1-MPC), where MPC represents the marginal propensity to consume.

Question 17

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₁ to MD₂ could be a result of

Accepted Answer

The answer of Figure 21-5.On the figure,MS represents money supply...

Question 18

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 formula for calculating the change in consumer spending is given by:
ΔC = MPC × ΔY
where ΔC is the change in consumer spending, MPC is the marginal propensity to consume, and ΔY is the change in income.

Given that the value of the multiplier (k) is 6.25, we can find the MPC as:
k = 1/(1 - MPC)
6.25 = 1/(1 - MPC)
1 - MPC = 1/6.25
1 - MPC = 0.16
MPC = 0.84

Substituting the values of MPC and ΔY into the formula, we get:
ΔC = MPC × ΔY
ΔC = 0.84 × (230 - 200)
ΔC = 0.84 × 30
ΔC ≈ $25.20

Therefore, the total consumer spending when income is $230 is:
$145 + $25.20 ≈ $170.20

Hence, the answer is C, and the other choices are incorrect.

Question 19

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

An increase in the money supply (Option A) will increase spending and shift the aggregate-demand curve to the right. An increase in government spending (Option C) will directly increase the aggregate-demand curve, as more spending means more demand for goods and services. An increase in taxes (Option B) will lead to a decrease in disposable income, and thus decrease consumption and decrease aggregate demand. Therefore, all of the above policy actions can shift the aggregate-demand curve, making option D the correct answer.

Question 20

In a certain economy,when income is $400,consumer spending is $350.The value of the multiplier for this economy is 3.125.It follows that,when income is $450,consumer spending is

Accepted Answer

The answer of In a certain economy,when income is $400,consumer...

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

Suppose an economy's marginal propensity to consume (MPC) is 0.6.Then

Which of the following events shifts aggregate demand rightward?

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.The multiplier for this economy is

An increase in government spending initially and primarily shifts

Government purchases are said to have a

The logic of the multiplier effect applies

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.What is measured along the vertical axis of the graph?

A decrease in government spending initially and primarily shifts

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.For this economy,an initial increase of $500 in net exports translates into a

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.The marginal propensity to consume for this economy is

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₁ to MD₂ could be a result of

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

Which of the following policy actions shifts the aggregate-demand curve?

In a certain economy,when income is $400,consumer spending is $350.The value of the multiplier for this economy is 3.125.It follows that,when income is $450,consumer spending is

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

Suppose an economy's marginal propensity to consume (MPC) is 0.6.Then

Which of the following events shifts aggregate demand rightward?

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.The multiplier for this economy is

An increase in government spending initially and primarily shifts

Government purchases are said to have a

The logic of the multiplier effect applies

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.What is measured along the vertical axis of the graph?

A decrease in government spending initially and primarily shifts

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.For this economy,an initial increase of $500 in net exports translates into a

Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase?

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.The marginal propensity to consume for this economy is

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD1 to MD2 could be a result of

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

Which of the following policy actions shifts the aggregate-demand curve?

In a certain economy,when income is $400,consumer spending is $350.The value of the multiplier for this economy is 3.125.It follows that,when income is $450,consumer spending is

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₁ to MD₂ could be a result of