Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

The Employment Act of 1946 states that

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Other things the same,which of the following responses would we expect to result from an decrease in U.S.interest rates?

A tax increase has

An decrease in taxes ____ aggregate demand through larger _____ by households.

The lag problem associated with fiscal policy is due mostly to

Suppose investment spending falls.To offset the change in output the Federal Reserve could

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r₃.Let Y₃ represent the corresponding quantity of goods and services demanded,and let P₃ represent the corresponding price level.Starting from this situation,if the Federal Reserve decreases the money supply and if the price level remains at P₃,then

A tax cut shifts the aggregate demand curve the farthest if

Which of the following is an example of crowding out?

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

Which of the following sequences best represents the crowding-out effect?

Paul Samuelson,a famous economist,said that

Assume that there is no accelerator affect.The MPC = 3/4.The government increases both expenditures and taxes by $600.The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone.The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand.How much does aggregate demand shift by?

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is 0.60.Suppose the effect on aggregate demand from a change in taxes is 3/5 the size of the change from government expenditures.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

To decrease the interest rate the Federal Reserve could

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

In recent years,the Federal Reserve has conducted policy by setting a target for

Which of the following statements generates the greatest amount of disagreement among economists?