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Monetary and Fiscal Policy
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Questions in this quiz (20)
1According to the theory of liquidity preference, how is the money supply affected by the interest rate?
- Adirectly
- Bnegatively
- Cnot affected
- Dpositively
2When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?
- AThe opportunity cost of holding money increases, so the quantity of money demanded increases.
- BThe opportunity cost of holding money increases, so the quantity of money demanded decreases.
- CThe opportunity cost of holding money decreases, so the quantity of money demanded decreases.
- DThe opportunity cost of holding money decreases, so the quantity of money demanded increases.
3According 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?
- AThe interest rate will increase, and the quantity of money demanded will increase.
- BThe interest rate will increase, and the quantity of money demanded will decrease.
- CThe interest rate will decrease, and the quantity of money demanded will decrease.
- DThe interest rate will decrease, and the quantity of money demanded will increase.
4Which of the following shifts money demand to the right?
- Aan increase in the interest rate
- Ba decrease in the price level
- Can increase in the price level
- Da decrease in the interest rate
5Which of the following is an effect of an increase in the interest rate?
- AIt induces firms to invest more.
- BIt shifts money demand to the right.
- CIt leads to the appreciation of the exchange rate.
- DIt induces households to increase consumption.
6How does an increase in the price level affect the interest rate?
- AIt increases the money demand and lowers the interest rate.
- BIt lowers the money demand and increases the interest rate.
- CIt increases the money demand and the interest rate.
- DIt lowers the money demand and the interest rate.
7In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?
- AIt causes interest rates to decrease and aggregate demand to shift left
- BIt causes interest rates to increase and aggregate demand to shift right.
- CIt causes interest rates to decrease and aggregate demand to shift right.
- DIt causes interest rates to increase and aggregate demand to shift left.
8If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?
- AThe money supply increases, and aggregate demand shifts left.
- BThe money supply increases, and aggregate demand shifts right.
- CThe money supply decreases, and aggregate demand shifts left.
- DThe money supply decreases, and aggregate demand shifts right.
9The 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?
- AIn 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.
- BIn 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.
- CIn the short run, the price level and real GDP would rise, but in the long run they would both be unaffected.
- DIn the short run, the price level and real GDP would fall, but in the long run they would both be unaffected.
10How does the interest rate change when the price level falls and when the money supply falls?
- AThe interest rate rises when the price level falls and falls when the money supply falls.
- BThe interest rate falls when the price level falls and rises when the money supply falls.
- CThe interest rate rises both when the price level falls and when the money supply falls.
- DThe interest rate falls both when the price level falls and when the money supply falls.
11In a small open economy with a flexible exchange rate, a monetary injection by the Bank of Canada causes which of the following?
- AIt causes a shift of the aggregate-demand curve farther to the right than it would in a closed economy.
- BIt causes an additional decrease in demand for Canadian-produced goods and services that is not realized in a closed economy.
- CIt causes net exports to fall.
- DIt causes the dollar to appreciate.
12Fiscal policy refers to the idea that aggregate demand is changed by changes in what?
- Atrade policy
- Bgovernment spending and taxes
- Cthe money supply
- Dexchange rates
13If the multiplier is 5, what is the MPC?
- A0.75
- B0.80
- C1.00
- D0.50
14If 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?
- A$133.33 billion
- B$80 billion
- C$600 billion
- D$800 billion
15Assume 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?
- AIt will shift the AD curve left by $25 billion.
- BIt will shift the AD curve right by $45 billion.
- CIt will shift the AD curve left by $20 billion.
- DIt will shift the AD curve right by $20 billion.
- EIt will shift the AD curve left by $45 billion.
16In a small open economy with a flexible exchange rate, an expansionary fiscal policy will cause which of the following to happen?
- AIt will cause an increase in the money supply
- BIt will cause net exports to rise.
- CIt will cause the dollar to depreciate.
- DIt will cause a reduction in the demand for Canadian-produced goods.
17Canada is a small open economy with a flexible exchange rate. Which of the following effects will a contractionary fiscal policy have?
- AIt 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.
- BIt 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.
- CIt 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.
- DIt 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.
18Suppose 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?
- AReal GDP would be higher but the price level would be the same.
- BBoth real GDP and the price level would be lower.
- CReal GDP would be higher but the price level would be lower.
- DBoth real GDP and the price level would be higher.
19Suppose 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?
- AReal GDP would be higher, but the price level would be lower.
- BBoth real GDP and the price level would be lower.
- CBoth real GDP and the price level would be higher.
- DReal GDP would be higher, but the price level would be the same.
20If 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?
- Aby increasing the money supply
- Bby raising taxes
- Cby decreasing the money supply
- Dby cutting expenditures
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- 1000 Intro to Economics (Monetary and Fiscal Policy) Quiz on Monetary and Fiscal Policy, created by Megan Clermont on 14/04/2016.
- Author
- Megan Clermont
- Language
- English
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