SOL_CHAP_34 - SOL CHAP 34 THE INFLUENCE OF MONETARY &...

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SOL CHAP 34 THE INFLUENCE OF MONETARY FISCAL POLICY ON AD PART 1: Multiple choices: 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. ANS: C PTS: 1 DIF: 1 REF: 34-1 TOP: Fiscal policy MSC: Analytical 2. Which of the following is not a reason the aggregate demand curve slopes downward? As the price level increases a.firms may believe the relative price of their output has risen. b.real wealth declines. c.the interest rate increases. d.the exchange rate increases. ANS: A PTS: 1 DIF: 1 REF: 34-1 TOP: Aggregate demand slope MSC: Definitional 3. Liquidity preference refers directly to Keynes' theory concerning a.the effects of changes in money demand and supply on interest rates. b.the effects of changes in money demand and supply on exchange rates. c.the effects of wealth on expenditures. d.the difference between temporary and permanent changes in income. ANS: A PTS: 1 DIF: 1 REF: 34-1 TOP: Liquidity preference MSC: Definitional 4. Liquidity preference theory is most relevant to the a.short run and supposes that the price level adjusts to bring money supply and money demand into balance. b.short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c.long run and supposes that the price level adjusts to bring money supply and money demand into balance. d.long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. ANS: B PTS: 1 DIF: 2 REF: 34-1 TOP: Liquidity preference MSC: Definitional
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5. If expected inflation is constant, then when the nominal interest rate increases, the real interest rate a.increases by more than the change in the nominal interest rate. b.increases by the change in the nominal interest rate. c.decreases by the change in the nominal interest rate. d.decreases by more than the change in the nominal interest rate. ANS: B PTS: 1 DIF: 1 REF: 34-1 TOP: Nominal and real interest rates MSC: Analytical 6. According to liquidity preference theory, the money supply curve is a.upward sloping. b.downward sloping. c.vertical. d.horizontal. ANS: C PTS: 1 DIF: 1 REF: 34-1 TOP: Money supply MSC: Definitional 7. According to liquidity preference theory, the money supply curve would shift right a.if the money demand curve shifted right. b.if the Federal Reserve chose to increase money supply. c.if the interest rate increased. d.All of the above are correct. ANS: B PTS: 1 DIF: 1 REF: 34-1 TOP: Money supply shifts MSC: Applicative 8. When the Fed sells government bonds, the reserves of the banking system a.increase, so the money supply increases. b.increase, so the money supply decreases. c.decrease, so the money supply increases.
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This note was uploaded on 12/06/2011 for the course BA 1111111 taught by Professor 323 during the Spring '11 term at RMIT Vietnam.

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SOL_CHAP_34 - SOL CHAP 34 THE INFLUENCE OF MONETARY &...

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