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Unformatted text preview: Chapter 21 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. 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. 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 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 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. 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. d. relatively unimportant because it takes a large change in wealth to make a significant change in interest rates. 7 . Which of the following claims concerning the importance of effects that explain the slope of the aggregate demand curve is correct? a. The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. b. The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes....
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This note was uploaded on 04/14/2010 for the course ECON Econ 102 taught by Professor Kimball during the Winter '09 term at Harvard.
- Winter '09