Chap011 - Chapter 11 - Monetary and Fiscal Policy Chapter...

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Chapter 11 - Monetary and Fiscal Policy Chapter 11 Monetary and Fiscal Policy Multiple Choice Questions 1. A change in which of the following will NOT shift the IS-curve? a. Autonomous investment B . Autonomous money demand c. Autonomous consumption d. Autonomous net exports e. Autonomous saving Difficulty: Easy 2. If money supply is held constant, a cut in government transfer payments will eventually cause interest rates to a. Decline, enhancing the expansionary impact of the policy B . Decline, decreasing the restrictive impact of the policy c. Increase, decreasing the expansionary impact of the policy d. Increase, decreasing the restrictive impact of the policy e. Increase, enhancing the restrictive impact of the policy Difficulty: Medium 3. In an IS-LM model, if the government enacts restrictive fiscal policy through a tax increase or a cut in government purchases, a. The interest rate will decline, lowering the incentive to save and thus also the level of investment spending b. The level of income will decrease but the interest rate will increase C . Both income and the interest rate will decrease d. The LM-curve will shift to the left e. The IS-curve will shift to the left, followed by a shift of the LM-curve to the left since this policy will change interest rates and therefore money demand Difficulty: Medium 11-1
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Chapter 11 - Monetary and Fiscal Policy 4. When the government employs a "tight fiscal policy," we should expect that a. The level of output will only be affected by a small amount b. Interest rates will increase c. Monetary policy will be "easy" at the same time d. Inflation will be lowered more than unemployment E . The budget deficit will decrease Difficulty: Easy 5. One side effect of expansionary fiscal policy is that A . Higher interest rates cause a change in the composition of GDP b. Higher interest rates significantly increase private saving c. Consumption spending is crowded out d. The Fed has to reinforce the policy through open market sales e. All of the above Difficulty: Medium 6. Monetary policy becomes more effective as a. The marginal propensity to save increases B . The interest sensitivity of money demand decreases c. The interest sensitivity of investment decreases d. The income tax rate increases e. None of the above Difficulty: Medium 11-2
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Chapter 11 - Monetary and Fiscal Policy 7. If we were in a liquidity trap, a. Investment would be totally interest insensitive B . Fiscal expansion would be unlikely to drive interest rates up c. Monetary policy would be more powerful than fiscal policy d. An increase in government spending would be totally offset by a decrease in private investment e. Crowding out would be made worse by the inability of monetary policy to accommodate fiscal policy Difficulty: Medium 11-3
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Chapter 11 - Monetary and Fiscal Policy 8. Monetary policy becomes less effective as a. The marginal propensity to consume increases b. The interest sensitivity of money demand decreases C . The interest sensitivity of investment decreases
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Chap011 - Chapter 11 - Monetary and Fiscal Policy Chapter...

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