chapter 34 - Chapter 34 The Influence of Monetary and...

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Unformatted text preview: Chapter 34 The Influence of Monetary and Fiscal Policy On Aggregate Demand TRUE/FALSE 1. Both monetary policy and fiscal policy affect aggregate demand. ANS: T DIF: 1 REF: 34-0 NAT: Analytic LOC: Monetary and fiscal policy TOP: Monetary policy | Fiscal policy MSC: Definitional 2. For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect. ANS: T DIF: 2 REF: 34-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Interest-rate effect MSC: Interpretive 3. According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds. ANS: F DIF: 2 REF: 34-1 NAT: Analytic LOC: The role of money TOP: Theory of liquidity preference MSC: Interpretive 4. The theory of liquidity preference was developed by Irving Fisher. ANS: F DIF: 1 REF: 34-1 NAT: Analytic LOC: The role of money TOP: Theory of liquidity preference | Economists MSC: Interpretive 5. An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right. ANS: T DIF: 2 REF: 34-1 NAT: Analytic LOC: Monetary and fiscal policy TOP: Monetary injections MSC: Interpretive 6. Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange. ANS: F DIF: 2 REF: 34-1 NAT: Analytic LOC: Aggregate demand and aggregate supply TOP: Exchange-rate effect MSC: Applicative 7. Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate. ANS: T DIF: 2 REF: 34-1 NAT: Analytic LOC: Monetary and fiscal policy TOP: Monetary policy MSC: Interpretive 8. For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run. ANS: F DIF: 1 REF: 34-1 NAT: Analytic LOC: Monetary and fiscal policy TOP: Fiscal policy | Monetary policy MSC: Interpretive 9. For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries. ANS: F DIF: 1 REF: 34-1 NAT: Analytic LOC: Monetary and fiscal policy TOP: Wealth effect MSC: Interpretive 203 204 Chapter 34/The Influence of Monetary and Fiscal Policy On Aggregate Demand 10. If the inflation rate is zero, then the nominal and real interest rate are the same. ANS: T DIF: 1 REF: 34-1 NAT: Analytic LOC: Monetary and fiscal policy TOP: Nominal interest rate | Real interest rate MSC: Interpretive 11. In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve....
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chapter 34 - Chapter 34 The Influence of Monetary and...

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