Multiple Choice – Section 01: How Monetary Policy Influences Aggregate Demand
1.Theinterest-rateeffect
a.dependsontheideathatincreasesininterestratesincreasethequantityofmoneydemanded.
b.dependsontheideathatincreasesininterestratesincreasethequantityofmoneysupplied.
c.isthemostimportantreason,inthecaseoftheUnitedStates,forthedownwardslopeoftheaggregate-demandcurve.
d.istheleastimportantreason,inthecaseoftheUnitedStates,forthedownwardslopeoftheaggregate-demandcurve.
2.Theinterest-rateeffect
a.dependsontheideathatdecreasesininterestratesincreasethequantityofgoodsandservicesdemanded.
b.dependsontheideathatdecreasesininterestratesdecreasethequantityofgoodsandservicesdemanded.
c.isresponsibleforthedownwardslopeofthemoney-demandcurve.
d.istheleastimportantreason,inthecaseoftheUnitedStates,forthedownwardslopeoftheaggregate-demandcurve.
3.Thewealtheffectstemsfromtheideathatahigherpricelevel
a.increasestherealvalueofhouseholds’moneyholdings.
b.decreasestherealvalueofhouseholds’moneyholdings.
c.increasestherealvalueofthedomesticcurrencyinforeign-exchangemarkets.
d.decreasestherealvalueofthedomesticcurrencyinforeign-exchangemarkets.
4.Theideathatadecreaseinthepricelevelraisestherealvalueofhouseholds’moneyholdings,whichincreasesconsumerspendingandthequantityofgoodsandservicesdemandedisknownas
a.theinterest-rateeffect.
b.theexchange-rateeffect.
c.thetheoryofliquiditypreference.
d.thewealtheffect.
5.WithrespecttotheirimpactonaggregatedemandfortheU.S.economy,whichofthefollowingrepresentsthecorrectorderingofthewealtheffect,interest-rateeffect,andexchange-rateeffectfrommostimportanttoleastimportant?
a.wealtheffect,exchange-rateeffect,interest-rateeffect
b.exchange-rateeffect,interest-rateeffect,wealtheffect
c.interest-rateeffect,wealtheffect,exchange-rateeffect
d.interest-rateeffect,exchange-rateeffect,wealtheffect
6.FortheU.S.economy,whichofthefollowingisthemostimportantreasonforthedownwardslopeoftheaggregate-demandcurve?
a.thewealtheffect
b.theinterest-rateeffect
c.theexchange-rateeffect
d.thereal-wageeffect
7.Whichofthefollowingislikelymoreimportantforexplainingtheslopeoftheaggregate-demandcurveofasmalleconomythanitisfortheUnitedStates?
a.thewealtheffect
b.theinterest-rateeffect
c.theexchange-rateeffect
d.thereal-wageeffect
8.FortheU.S.economy,whichofthefollowinghelpsexplaintheslopeoftheaggregate-demandcurve?
a.Anincreaseinthepriceleveldecreasestheinterestrate.
b.Anincreaseinthepricelevelincreasestheinterestrate.
c.Anincreaseinthemoneysupplydecreasestheinterestrate.
d.Anincreaseinthemoneysupplyincreasestheinterestrate.
9.Thewealtheffecthelpsexplaintheslopeoftheaggregate-demandcurve.Thiseffectis
a.relativelyimportantintheUnitedStatesbecauseexpendituresonconsumerdurablesisveryresponsivetochangesinwealth.
b.relativelyimportantintheUnitedStatesbecauseconsumptionspendingisalargepartofGDP.
c.relativelyunimportantintheUnitedStatesbecausemoneyholdingsareasmallpartofconsumerwealth.
d.relativelyunimportantbecauseittakesalargechangeinwealthtocauseasignificantchangeininterestrates.
10.WhichofthefollowingclaimsconcerningtheimportanceofeffectsthatexplaintheslopeoftheU.S.aggregate-demandcurveiscorrect?
a.Theexchange-rateeffectisrelativelysmallbecauseexportsandimportsareasmallpartofrealGDP.
b.Theinterest-rateeffectisrelativelysmallbecauseinvestmentspendingisnotveryresponsivetointerestratechanges.
c.Thewealtheffectisrelativelylargebecausemoneyholdingsareasignificantportionofmosthouseholds’wealth.
d.Noneoftheaboveiscorrect.
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