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

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Figure 34-6. 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 34-6. Suppose the multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out; the AD curve actually shifts from AD₁ to AD₃ with crowding out. Also, suppose the horizontal distance between the curves AD₁ and AD₃ is $55 billion. The extent of crowding out, for any particular level of the price level, is

When the interest rate increases, the opportunity cost of holding money

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

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 is measured along the horizontal axis of the left-hand graph?

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____.

Which of the following illustrates how the investment accelerator works?

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

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

Both monetary policy and fiscal policy affect aggregate demand.

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Figure 34-3. -Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

During the economic downturn of 2008-2009, the Federal Reserve

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₃. Which of the following events would cause the equilibrium interest rate to decrease?

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to