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In a small open economy with a flexible exchange rate,what will an expansionary fiscal policy cause?


A) It will cause the dollar to depreciate.
B) It will cause net exports to rise.
C) It will cause an additional investment accelerator effect.
D) It will cause a reduction in the demand for Canadian-produced goods.

E) A) and B)
F) B) and D)

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Which of the following shifts money demand to the right?


A) an increase in the price level and the interest rate
B) an increase in the price level and a decrease in the interest rate
C) a decrease in the interest rate but not a change in the price level
D) an increase in the price level but not a change in the interest rate

E) A) and B)
F) None of the above

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The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

A) True
B) False

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Suppose the closed economy is in long-run equilibrium.Advances in technology shift the long-run aggregate-supply curve $80 billion to the right.Optimistic investors have shifted the aggregate-demand curve $150 billion to the right.In order to stabilize the price level at its original value,the government wants to reduce its spending.If the crowding-out effect is always half of the multiplier effect,and if the MPC equals 0.75,by how much must the government cut its spending?


A) $4 billion
B) $40 billion
C) $75 billion
D) $150 billion

E) C) and D)
F) A) and D)

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Assume the money market is initially in equilibrium.If the price level increases,according to liquidity-preference theory,what is in excess and for how long?


A) The supply of money is in excess until the interest rate increases.
B) The supply of money is in excess until the interest rate decreases.
C) The demand for money is in excess until the interest rate increases.
D) The demand for money is in excess until the interest rate decreases.

E) B) and D)
F) B) and C)

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We have learned in previous chapters that fiscal policy can have lasting effects on savings,investment,and economic growth.On the other hand,thisChapter seems to suggest that the only long-run effect of fiscal policy is an increase in the price level.How could you use the aggregate demand and supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?

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If we accept that fiscal policies increa...

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Suppose that the MPC is 0.5 and there is no investment accelerator or crowding-out effects.If government expenditures increase by $200 billion,what happens to aggregate demand?


A) It shifts right by $200 billion.
B) It shifts left by $200 billion.
C) It shifts right by $400 billion.
D) It shifts left by $400 billion.

E) None of the above
F) A) and B)

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Assume that the MPC is 0.8.Assuming that only the multiplier effect matters,how will a decrease in government purchases of $150 billion shift the aggregate demand curve?


A) It will shift the aggregate demand curve left by $120 billion.
B) It will shift the aggregate demand curve left by $150 billion.
C) It will shift the aggregate demand curve right by $150 billion.
D) It will shift the aggregate demand curve left by $750 billion.

E) All of the above
F) A) and C)

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If there is excess money demand,what will people do and what happens to the interest rate?


A) People will deposit more into interest-bearing accounts,and the interest rate will fall.
B) People will deposit more into interest-bearing accounts,and the interest rate will rise.
C) People will withdraw money from interest-bearing accounts,and the interest rate will fall.
D) People will withdraw money from interest-bearing accounts,and the interest rate will rise.

E) None of the above
F) A) and D)

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Assume that the MPC is 0.8.Assume that the total crowding-out effect is $20 billion.How will an increase in government purchases of $9 billion shift the AD curve?


A) It will shift the AD curve right by $25 billion.
B) It will shift the AD curve left by $25 billion.
C) It will shift the AD curve right by $20 billion.
D) It will shift the AD curve left by $20 billion

E) A) and B)
F) C) and D)

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In a small open economy with perfect capital mobility,if the Bank of Canada chooses to fix the value of the Canadian dollar,what will a contractionary monetary policy do?


A) It will have no effect.
B) It will shift the AD curve to the left.
C) It will shift the AD curve to the right.
D) It will shift both the AD curve and the short-run AS curve to the left.

E) C) and D)
F) B) and D)

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When Parliament reduces spending in order to balance the budget,what does it need to consider?


A) the short-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth
B) the short-run effects on aggregate demand and aggregate supply,and the short-run effects on saving and growth
C) the long-run effects on aggregate demand and aggregate supply,and the long-run effects on saving and growth
D) the long-run effects on aggregate demand and aggregate supply,and the short-run effects on saving and growth

E) A) and B)
F) A) and C)

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If the multiplier is 10,what is the MPC?


A) 1 / 9
B) 1 / 5
C) 4 / 5
D) 9 / 10

E) A) and D)
F) B) and D)

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Figure 15-1 Figure 15-1 -Refer to the Figure 15-1.At which interest rate is there an excess money demand? A) 2 percent B) 3 percent C) 4 percent D) 5 percent -Refer to the Figure 15-1.At which interest rate is there an excess money demand?


A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent

E) C) and D)
F) A) and C)

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Explain how unemployment insurance acts as an automatic stabilizer.

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As income falls,unemployment rises.More ...

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Figure 15-2 Figure 15-2 -Refer to the Figure 15-2.If the closed economy is at point b,the best policy to restore full employment is which of the following? A) increasing the money supply B) decreasing government purchases C) increasing taxes D) selling Canadian dollars -Refer to the Figure 15-2.If the closed economy is at point b,the best policy to restore full employment is which of the following?


A) increasing the money supply
B) decreasing government purchases
C) increasing taxes
D) selling Canadian dollars

E) A) and B)
F) A) and C)

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If the Bank of Canada allows the exchange rate to vary freely,which effect will an expansionary fiscal policy have?


A) It will cause a large and permanent rightward shift of the AD curve.
B) It will cause a large and permanent leftward shift of the AD curve.
C) It will have no permanent effect on the position of the AD curve,but it will cause interest rates to permanently increase.
D) It will have no permanent effect on either the position of the AD curve or the interest rate.

E) A) and D)
F) All of the above

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An increase in government spending initially and primarily shifts which curve in what direction?


A) aggregate demand to the right
B) aggregate demand to the left
C) aggregate supply to the right
D) aggregate supply to the left

E) All of the above
F) A) and C)

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In which situation do people want to hold more money?


A) when the price level and the interest rate increases
B) when the price level and the interest rate decreases
C) when the price level increases and the interest rate decreases
D) when the price level decreases and the interest rate increases

E) A) and C)
F) A) and B)

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What is an effect of an increase in government purchases?


A) It decreases interest rates.
B) It results in a decrease in the government deficit.
C) It crowds out investment spending by business.
D) It decreases money demand.

E) A) and B)
F) A) and C)

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