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

Figure 34-9 -Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

Which of the following shifts aggregate demand to the right?

If the Fed conducts open-market purchases, the money supply

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

According to the theory of liquidity preference,

An increase in government purchases is likely to

In which of the following cases would the quantity of money demanded be smallest?

Unemployment insurance benefits are an example of _____.

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. . -Refer to Figure 34-2. What does Y represent on the horizontal axis of the right-hand graph?

According to the theory of liquidity preference, money demand

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. . -Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r₁ = 0.08; r₂ = 0.12; Y₁ = 13,000; Y₂ = 10,000; P₁ = 1.0; and P₂ = 1.2. Which of the following statements is correct?

During recessions, the government tends to run a budget deficit.

The Fed can influence the money supply by

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

Which of the following Fed actions would both decrease the money supply?

An increase in the price level shifts the money demand curve to the left, causing interest rates to increase.

If Congress increases taxes to balance the federal budget, then to prevent additional unemployment and a recession the Fed can

An increase in government spending