Practice Exam

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Topic 13: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Multiple Choice

1. Aggregate demand is affected by

a. monetary and fiscal policy.

b. spending by households and firms.

c. Both of the above are correct.

d. None of the above are correct.

2. Aggregate demand is affected by

a. shocks to the economy such as changes in the value of the stock market.

b. government policy such as changes in taxes and government expenditures.

c. Both of the above are correct.

d. None of the above are correct.

3. Fiscal policy affects the economy

a. only in the short run.

b. only in the long run.

c. in both the short and long run.

d. in neither the short nor long run.

5. Which of the following is not a reason the aggregate demand curve slopes downward? As the price level increases

a. real wages decline.

b. real wealth declines.

c. the interest rate increases.

d. the exchange rate increases.

6. For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

a. the real-wage effect

b. the wealth effect

c. the interest-rate effect

d. the exchange-rate effect

7. Which of the following is not a response that would result from a decrease in the price level and so help to explain the slope of the aggregate demand curve?

a. The owners of the Peapod, a vegetarian restaurant, bought new tables when interest rates fell.

b. Janet buys more artwork when prices fall, because the money she was holding is now worth more.

c. Samuel hires more workers because the price of his output rose, but his workers' wages are fixed by contract.

d. The exchange rate falls so French restaurants in Paris buy more delicious pork chops from Iowa.

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