Econ 201 Ch 34 Study Guide

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Chapter 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Multiple Choice
1.Shifts in the aggregate-demand curve can cause fluctuations in a.| neither the level of output nor the level of prices.| b.| the level of output, but not in the level of prices.| c.| the level of prices, but not in the level of output.| d.| the level of output and in the level of prices.|

ANS:DPTS:1DIF:1REF:21-0
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Economic fluctuations | Aggregate demandMSC:Interpretive
2.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 the long run.|
ANS:CPTS:1DIF:1REF:21-0
NAT:AnalyticLOC:Monetary and fiscal policyTOP:Fiscal policy MSC:Interpretive
3.Shifts in aggregate demand affect the price level in
a.| the short run but not in the long run.|
b.| the long run but not in the short run.|
c.| both the short and long run.|
d.| neither the short nor long run.|
ANS:CPTS:1DIF:2REF:21-0
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Aggregate demand and aggregate supplyMSC:Definitional How Monetary Policy Influences Aggregate Demand
1.The interest-rate effect
a.| depends on the idea that increases in interest rates increase the quantity of money demanded.| b.| depends on the idea that increases in interest rates increase the quantity of money supplied.| c.| is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.| d.| is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.|

ANS:CPTS:1DIF:2REF:21-1
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Interest-rate effectMSC:Interpretive
2.The interest-rate effect
a.| depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.| b.| depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.| c.| is responsible for the downward slope of the money-demand curve.| d.| is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.|

ANS:APTS:1DIF:2REF:21-1
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Interest-rate effectMSC:Interpretive
3.The wealth effect stems from the idea that a higher price level a.| increases the real value of households’ money holdings.| b.| decreases the real value of households’ money holdings.| c.| increases the real value of the domestic currency in foreign-exchange markets.| d.| decreases the real value of the domestic currency in foreign-exchange markets.|

ANS:BPTS:1DIF:2REF:21-1
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Wealth effectMSC:Interpretive
4.With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important? a.| wealth effect, exchange-rate effect, interest-rate effect| b.| exchange-rate effect, interest-rate effect, wealth effect| c.| interest-rate effect, wealth effect, exchange-rate effect| d.| interest-rate effect, exchange-rate effect, wealth effect|

ANS:DPTS:1DIF:2REF:21-1
NAT:AnalyticLOC:Aggregate demand and aggregate supply TOP:Aggregate demand curveMSC:Interpretive
5.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.|...
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