Monetary and Fiscal Policy Quiz

Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by

• aggregate supply and aggregate demand.

• the supply and demand for loanable funds.

• the supply and demand for money.

• the supply and demand for labour.

When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate

• none of these answers

• decreases the quantity demanded of money.

• increases the quantity demanded of money.

• decreases the demand for money.

• increases the demand for money.

When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level

• shifts money demand to the right and increases the interest rate.

• none of these answers

• shifts money demand to the right and decreases the interest rate.

• shifts money demand to the left and increases the interest rate.

• shifts money demand to the left and decreases the interest rate.

For the Eurozone countries, the most important source of the downward slope of the aggregate demand curve is probably

• the wealth effect.

• none of these answers

• the exchange-rate effect.

• the fiscal effect.

• the interest-rate effect.

In the market for real output, the initial effect of an increase in the money supply is to

• shift the aggregate supply curve to the right.

• shift the aggregate supply curve to the right.

• shift the aggregate demand curve to the left.

• shift the aggregate demand curve to the right.

The initial effect of an increase in the money supply is to

• increase the interest rate.

• increase the price level.

• decrease the price level.

• decrease the interest rate.

The long-run effect of an increase in the money supply is to

• increase the interest rate.

• decrease the price level.

• increase the price level.

• decrease the interest rate.

Suppose a wave of investor and consumer pessimism in the USA causes a reduction in spending. If the US Federal Reserve (which has a broader remit than the Bank of England which is charged only with controlling inflation) chooses to engage in activist stabilization policy, it should

• increase government spending and decrease taxes.

• decrease the money supply.

• decrease government spending and increase taxes.

• decrease interest rates.

The initial impact of an increase in government spending is to shift

• aggregate demand to the right.

• aggregate demand to the left.

• aggregate supply to the right.

• aggregate supply to the left.

If the marginal propensity to consume MPC is 0.75, the value of the multiplier is

• 4.

• 7.5.

• none of these answers.

• 5.

• 0.75.