WorksheetsMonetary and Fiscal Policy
Total questions: 15
Worksheet time: 10mins
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
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.
For the USA, the most important source of the downward slope of the aggregate demand curve is probably
the wealth effect.
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.
5.
0.75.
An increase in the marginal propensity to consume (MPC)
raises the value of the multiplier.
has no impact on the value of the multiplier.
rarely occurs because the MPC is set by congressional legislation.
lowers the value of the multiplier.
When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of
supply-side economics.
none of these answers.
the crowding-out effect.
the multiplier effect.
Which of the following statements regarding taxes is correct?
Most economists believe that, in the short run, the greatest impact of a change in taxes is on aggregate supply, not aggregate demand.
An increase in taxes shifts the aggregate demand curve to the right.
A decrease in taxes shifts the aggregate supply curve to the left.
A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.
When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of
the multiplier effect.
supply-side economics.
the crowding-out effect.
none of these answers.
Which of the following is an automatic stabilizer?
Spending on public schools
Military spending
All of these answers are automatic stabilizers.
Spending on the space shuttle
Unemployment benefits
