34 - Chapter 16 The Influence of Monetary and Fiscal Policy...

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Unformatted text preview: Chapter 16 The Influence of Monetary and Fiscal Policy on Aggregate Demand MULTIPLE CHOICE 1. Fiscal policy affects the economy a. only in the short run. b. only in the long run. c. in both the short and long run. d. in neither the short nor long run. ANSWER: c. in both the short and long run. TYPE: M DIFFICULTY: 1 SECTION: 16.0 2. Which of the following is not a reason the aggregate demand curve slopes downward? As the price level increases a. real wages decline. b. real wealth declines. c. the interest rate increases. d. the exchange rate increases. ANSWER: a. real wages decline. TYPE: M DIFFICULTY: 1 SECTION: 16.1 3. 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 wealth effect b. the interest-rate effect c. the exchange-rate effect d. the real-wage effect ANSWER: b. the interest-rate effect TYPE: M DIFFICULTY: 1 SECTION: 16.1 4. Which of the following reasons for the downward slope of the aggregate demand curve would likely be more important for a small economy than for the United States? a. the wealth effect b. the interest-rate effect c. the exchange-rate effect d. the real-wage effect ANSWER: c. the exchange-rate effect TYPE: M DIFFICULTY: 1 SECTION: 16.1 5. Which of the following is not a response that would result from a decrease in the price level and so help to explain the slope of the aggregate demand curve? a. When interest rates fall, Sleepwell Hotels decides to build some new hotels. b. The exchange rate falls, so French restaurants in Paris buy more Iowa pork. c. Janet feels wealthier because of the price drop and so she decides to remodel her bathroom. d. With prices down and wages fixed by contract, Gatekeeper Computers decides to lay off workers. ANSWER: d. With prices down and wages fixed by contract, Gatekeeper Computers decides to lay off workers. TYPE: M DIFFICULTY: 1 SECTION: 16.1 151 152 Chapter 16/The Influence of Monetary and Fiscal Policy on Aggregate Demand 6. The wealth effect helps explain the downward slope of the aggregate demand curve. This effect is a. relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. b. relatively important in the United States because consumption spending is a large part of GDP. c. relatively unimportant in the United States because money holdings are a small part of consumer wealth....
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34 - Chapter 16 The Influence of Monetary and Fiscal Policy...

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