13.2   Monetary Policy Effects

1) An intended goal of contractionary fiscal policy and a tightening of monetary policy is

A) an increase in interest rates.

B) an increase in the price level.

C) a decrease in the unemployment rate.

D) a decrease in the level of aggregate output.

2) If a decrease in the Z factors resulted in a very large change in the price level and a very small change in aggregate output,

A) then in the U.S. economy investment demand must not be sensitive to the interest rate.

B) then the U.S. economy must have been on the very steep part of its short-run aggregate supply curve.

C) then the U.S. economy must have been on the very flat part of its short-run aggregate supply curve.

D) then the U.S. aggregate demand curve must be very steep.

3) An increase in the Z factors represents

A) a tightening of monetary policy.

B) an easing of monetary policy.

C) an expansionary fiscal policy.

D) a contractionary fiscal policy.

4) Other things equal, a decrease in the Z factors will ________ the equilibrium price level and ________ equilibrium output.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

5) If the Fed has a strong preference for stable prices relative to output, it responds to a price ________ with a ________ increase in the interest rate.

A) increase; large

B) increase; small

C) decrease; large

D) decrease; small

6) When the AD curve is relatively flat, the Fed

A) is only willing to accept small changes in output to keep the price level stable.

B) is willing to accept large changes in the price level to keep output stable.

C) is not willing to accept any changes in output to keep the price level stable.

D) is willing to accept large changes in output to keep the price level stable.

7) If the Fed has a strong preference for stable prices relative to output, the ________ curve is relatively ________.

A) AD; steep

B) AD; flat

C) AS; steep

D) AS; flat

8) In a binding situation,

A) only changes in the price level change the interest rate.

B) only changes in the Z factors change the interest rate.

C) changes in both the price level and in the Z factors change the interest rate.

D) the interest rate is always zero.

9) In a binding situation, the ________ curve is ________.

A) AD; horizontal

B) AD; vertical

C) AS; horizontal

D) AS; vertical

10) In a binding situation,

A) planned investment increases when the price level decreases.

B) output increases when the price level decreases.

C) planned investment and output both increase when the price level decreases.

D) neither planned investment nor output change when the price level decreases.

11) In a binding situation, an increase in the Z factors

A) shifts the AD curve to the right.

B) shifts the AD curve to the left.

C) does not shift the AD curve.

D) causes the AD curve to become horizontal.

12) In a binding situation, an increase in government spending

A) shifts the AD curve to the right.

B) shifts the AD curve to the left.

C) does not shift the AD curve.

D) causes the AD curve to become horizontal.

13) In a binding situation, an increase in net taxes

A) shifts the AD curve to the right.

B) shifts the AD curve to the left.

C) does not shift the AD curve.

D) causes the AD curve to become horizontal.

14) In a binding situation, there is ________ crowding out of planned investment when government spending increases.

A) complete

B) partial

C) no

D) negative

15) When the AD curve is vertical,

A) fiscal policy can be used to increase output.

B) monetary policy can be used to increase output.

C) both fiscal policy and monetary policy can be used to increase output.

D) neither fiscal policy nor monetary policy can be used to increase output.

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