Question 26 The effects of a higher than expected price level are shown by Answer shifting the short-run aggregate supply curve right. shifting the short-run aggregate supply curve left. moving to the right along a given aggregate supply curve. moving to the left along a given aggregate supply curve. Question 27 A decrease in the expected price level shifts Answer only the long-run aggregate supply curve right. only the short-run aggregate supply curve right. both the short-run and the long-run aggregate supply curve right. Neither the short-run nor the long-run aggregate supply curve right. Question 28 Which of the following shifts short-run, but not long-run aggregate supply right? Answer a decrease in the actual price level a decrease in the expected price level a decrease in the capital stock an increase in the money supply Question 29 In 1986, OPEC countries increased their production of oil. This caused Answer the price level to rise. aggregate supply to shift right. unemployment to rise. None of the above is correct. Question 30 Keynes believed that economies experiencing high unemployment should adopt policies to reduce the money supply. reduce government expenditures. increase aggregate demand. increase aggregate supply. Question 31 The interest-rate effect Answer depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. is responsible for the downward slope of the money-demand curve. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. Question 32 The wealth effect stems from the idea that a higher price level Answer increases the real value of households’ money holdings. decreases the real value of households’ money holdings. increases the real value of the domestic currency in foreign-exchange markets. decreases the real value of the domestic currency in foreign-exchange markets. Question 33 According to John Maynard Keynes, Answer the demand for money in a country is determined entirely by that nation’s central bank. the supply of money in a country is determined by the overall wealth of the citizens of that country. the interest rate adjusts to balance the supply of, and demand for, money. the interest rate adjusts to balance the supply of, and demand for, goods and services. Question 34 While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows: Answer “Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” “Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent.” Question 35 People choose to hold a smaller quantity of money if Answer the interest rate rises, which causes the opportunity cost of holding money to rise. the interest rate falls, which causes the opportunity cost of holding money to rise. the interest rate rises, which causes the opportunity cost of holding money to fall. the interest rate falls, which causes the opportunity cost of holding money to fall. Question 36 If expected inflation is constant, then when the nominal interest rate increases, the real interest rate Answer increases by more than the change in the nominal interest rate. increases by the change in the nominal interest rate. decreases by the change in the nominal interest rate. decreases by more than the change in the nominal interest rate. Question 37 When the Fed sells government bonds, the reserves of the banking system decrease; increases increase; decreases increase; increases decrease; decreases Question 38 The opportunity cost of holding money Answer decreases when the interest rate increases, so people desire to hold more of it. decreases when the interest rate increases, so people desire to hold less of it. increases when the interest rate increases, so people desire to hold more of it. increases when the interest rate increases, so people desire to hold less of it. Question 39 If there is excess money supply, people will Answer deposit more into interest-bearing accounts, and the interest rate will fall. deposit more into interest-bearing accounts, and the interest rate will rise. withdraw money from interest-bearing accounts, and the interest rate will fall. withdraw money from interest-bearing accounts, and the interest rate will rise.
Question 26
The effects of a higher than expected
Answer
shifting the short-run
shifting the short-run aggregate supply curve left.
moving to the right along a given aggregate supply curve.
moving to the left along a given aggregate supply curve.
Question 27
A decrease in the expected price level shifts
Answer
only the long-run aggregate supply curve right.
only the short-run aggregate supply curve right.
both the short-run and the long-run aggregate supply curve right.
Neither the short-run nor the long-run aggregate supply curve right.
Question 28
Which of the following shifts short-run, but not long-run aggregate supply right?
Answer
a decrease in the actual price level
a decrease in the expected price level
a decrease in the capital stock
an increase in the money supply
Question 29
In 1986, OPEC countries increased their production of oil. This caused
Answer
the price level to rise.
aggregate supply to shift right.
None of the above is correct.
Question 30
Keynes believed that economies experiencing high unemployment should adopt policies to
reduce the money supply.
reduce government expenditures.
increase aggregate
increase aggregate supply.
Question 31
The interest-rate effect
Answer
depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
is responsible for the downward slope of the money-demand curve.
is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.
Question 32
The wealth effect stems from the idea that a higher price level
Answer
increases the real value of households’ money holdings.
decreases the real value of households’ money holdings.
increases the real value of the domestic currency in foreign-exchange markets.
decreases the real value of the domestic currency in foreign-exchange markets.
Question 33
According to John Maynard Keynes,
Answer
the demand for money in a country is determined entirely by that nation’s central bank.
the supply of money in a country is determined by the overall wealth of the citizens of that country.
the interest rate adjusts to balance the supply of, and demand for, money.
the interest rate adjusts to balance the supply of, and demand for, goods and services.
Question 34
While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows:
Answer
“Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.”
“Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.”
“Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.”
“Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent.”
Question 35
People choose to hold a smaller quantity of money if
Answer
the interest rate rises, which causes the
the interest rate falls, which causes the opportunity cost of holding money to rise.
the interest rate rises, which causes the opportunity cost of holding money to fall.
the interest rate falls, which causes the opportunity cost of holding money to fall.
Question 36
If expected inflation is constant, then when the nominal interest rate increases, the real interest rate
Answer
increases by more than the change in the nominal interest rate.
increases by the change in the nominal interest rate.
decreases by the change in the nominal interest rate.
decreases by more than the change in the nominal interest rate.
Question 37
When the Fed sells government bonds, the reserves of the banking system
decrease; increases
increase; decreases
increase; increases
decrease; decreases
Question 38
The opportunity cost of holding money
Answer
decreases when the interest rate increases, so people desire to hold more of it.
decreases when the interest rate increases, so people desire to hold less of it.
increases when the interest rate increases, so people desire to hold more of it.
increases when the interest rate increases, so people desire to hold less of it.
Question 39
If there is
Answer
deposit more into interest-bearing accounts, and the interest rate will fall.
deposit more into interest-bearing accounts, and the interest rate will rise.
withdraw money from interest-bearing accounts, and the interest rate will fall.
withdraw money from interest-bearing accounts, and the interest rate will rise.
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