Monetary and Fiscal Policy

Question 1 of 20

1

According to the theory of liquidity preference, how is the money supply affected by the interest rate?

Select one of the following:

directly
negatively
not affected
positively

Explanation

Question 2 of 20

1

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

Select one of the following:

The opportunity cost of holding money increases, so the quantity of money demanded increases.
The opportunity cost of holding money increases, so the quantity of money demanded decreases.
The opportunity cost of holding money decreases, so the quantity of money demanded decreases.
The opportunity cost of holding money decreases, so the quantity of money demanded increases.

Explanation

Question 3 of 20

1

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, what will happen to the interest rate and the quantity of money demanded?

Select one of the following:

The interest rate will increase, and the quantity of money demanded will increase.
The interest rate will increase, and the quantity of money demanded will decrease.
The interest rate will decrease, and the quantity of money demanded will decrease.
The interest rate will decrease, and the quantity of money demanded will increase.

Explanation

Question 4 of 20

1

Which of the following shifts money demand to the right?

Select one of the following:

an increase in the interest rate
a decrease in the price level
an increase in the price level
a decrease in the interest rate

Explanation

Question 5 of 20

1

Which of the following is an effect of an increase in the interest rate?

Select one of the following:

It induces firms to invest more.
It shifts money demand to the right.
It leads to the appreciation of the exchange rate.
It induces households to increase consumption.

Explanation

Question 6 of 20

1

How does an increase in the price level affect the interest rate?

Select one of the following:

It increases the money demand and lowers the interest rate.
It lowers the money demand and increases the interest rate.
It increases the money demand and the interest rate.
It lowers the money demand and the interest rate.

Explanation

Question 7 of 20

1

In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?

Select one of the following:

It causes interest rates to decrease and aggregate demand to shift left
It causes interest rates to increase and aggregate demand to shift right.
It causes interest rates to decrease and aggregate demand to shift right.
It causes interest rates to increase and aggregate demand to shift left.

Explanation

Question 8 of 20

1

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

Select one of the following:

The money supply increases, and aggregate demand shifts left.
The money supply increases, and aggregate demand shifts right.
The money supply decreases, and aggregate demand shifts left.
The money supply decreases, and aggregate demand shifts right.

Explanation

Question 9 of 20

1

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

Select one of the following:

In the short run, the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected.
In the short run, the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected.
In the short run, the price level and real GDP would rise, but in the long run they would both be unaffected.
In the short run, the price level and real GDP would fall, but in the long run they would both be unaffected.

Explanation

Question 10 of 20

1

How does the interest rate change when the price level falls and when the money supply falls?

Select one of the following:

The interest rate rises when the price level falls and falls when the money supply falls.
The interest rate falls when the price level falls and rises when the money supply falls.
The interest rate rises both when the price level falls and when the money supply falls.
The interest rate falls both when the price level falls and when the money supply falls.

Explanation

Question 11 of 20

1

In a small open economy with a flexible exchange rate, a monetary injection by the Bank of Canada causes which of the following?

Select one of the following:

It causes a shift of the aggregate-demand curve farther to the right than it would in a closed economy.
It causes an additional decrease in demand for Canadian-produced goods and services that is not realized in a closed economy.
It causes net exports to fall.
It causes the dollar to appreciate.

Explanation

Question 12 of 20

1

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

Select one of the following:

trade policy
government spending and taxes
the money supply
exchange rates

Explanation

Question 13 of 20

1

If the multiplier is 5, what is the MPC?

Select one of the following:

0.75
0.80
1.00
0.50

Explanation

Question 14 of 20

1

If the MPC is 0.75 and there are no crowding-out effects, an initial increase in AD of $150 billion will eventually shift the AD curve to the right by how much?

Select one of the following:

$133.33 billion
$80 billion
$600 billion
$800 billion

Explanation

Question 15 of 20

1

Assume that the MPC is 0.8. Assume that the total crowding-out effect is $25 billion. How will an increase in government purchases of $9 billion shift the AD curve?

Select one of the following:

It will shift the AD curve left by $25 billion.
It will shift the AD curve right by $45 billion.
It will shift the AD curve left by $20 billion.
It will shift the AD curve right by $20 billion.
It will shift the AD curve left by $45 billion.

Explanation

Question 16 of 20

1

In a small open economy with a flexible exchange rate, an expansionary fiscal policy will cause which of the following to happen?

Select one of the following:

It will cause an increase in the money supply
It will cause net exports to rise.
It will cause the dollar to depreciate.
It will cause a reduction in the demand for Canadian-produced goods.

Explanation

Question 17 of 20

1

Canada is a small open economy with a flexible exchange rate. Which of the following effects will a contractionary fiscal policy have?

Select one of the following:

It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase.
It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase.
It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease.
It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease.

Explanation

Question 18 of 20

1

Suppose the closed economy is in long-run equilibrium. Technological change shifts the long-run aggregate-supply curve $80 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.8 and the crowding-out effect is $70 billion, what would we expect to happen in the long-run to real GDP and the price level?

Select one of the following:

Real GDP would be higher but the price level would be the same.
Both real GDP and the price level would be lower.
Real GDP would be higher but the price level would be lower.
Both real GDP and the price level would be higher.

Explanation

Question 19 of 20

1

Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level?

Select one of the following:

Real GDP would be higher, but the price level would be lower.
Both real GDP and the price level would be lower.
Both real GDP and the price level would be higher.
Real GDP would be higher, but the price level would be the same.

Explanation

Question 20 of 20

1

If the federal government cuts spending to balance the federal budget, how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?

Select one of the following:

by increasing the money supply
by raising taxes
by decreasing the money supply
by cutting expenditures

	Created by Megan Clermont about 8 years ago

1000 Intro to Economics (Monetary and Fiscal Policy) Quiz on Monetary and Fiscal Policy, created by Megan Clermont on 14/04/2016.

Monetary and Fiscal Policy

Question 1 of 20

According to the theory of liquidity preference, how is the money supply affected by the interest rate?

Select one of the following:

Explanation

Question 2 of 20

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

Select one of the following:

Explanation

Question 3 of 20

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, what will happen to the interest rate and the quantity of money demanded?

Select one of the following:

Explanation

Question 4 of 20

Which of the following shifts money demand to the right?

Select one of the following:

Explanation

Question 5 of 20

Which of the following is an effect of an increase in the interest rate?

Select one of the following:

Explanation

Question 6 of 20

How does an increase in the price level affect the interest rate?

Select one of the following:

Explanation

Question 7 of 20

In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?

Select one of the following:

Explanation

Question 8 of 20

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

Select one of the following:

Explanation

Question 9 of 20

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

Select one of the following:

Explanation

Question 10 of 20

How does the interest rate change when the price level falls and when the money supply falls?

Select one of the following:

Explanation

Question 11 of 20

In a small open economy with a flexible exchange rate, a monetary injection by the Bank of Canada causes which of the following?

Select one of the following:

Explanation

Question 12 of 20

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

Select one of the following:

Explanation

Question 13 of 20

If the multiplier is 5, what is the MPC?

Select one of the following:

Explanation

Question 14 of 20

If the MPC is 0.75 and there are no crowding-out effects, an initial increase in AD of $150 billion will eventually shift the AD curve to the right by how much?

Select one of the following:

Explanation

Question 15 of 20

Assume that the MPC is 0.8. Assume that the total crowding-out effect is $25 billion. How will an increase in government purchases of $9 billion shift the AD curve?

Select one of the following:

Explanation

Question 16 of 20

In a small open economy with a flexible exchange rate, an expansionary fiscal policy will cause which of the following to happen?

Select one of the following:

Explanation

Question 17 of 20

Canada is a small open economy with a flexible exchange rate. Which of the following effects will a contractionary fiscal policy have?

Select one of the following:

Explanation

Question 18 of 20

Select one of the following:

Explanation

Question 19 of 20

Select one of the following:

Explanation

Question 20 of 20

If the federal government cuts spending to balance the federal budget, how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?

Select one of the following:

Explanation