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

Figure 34-8 ​ -Refer to Figure 34-8. Initial equilibrium exists at point A. A decline in prices will cause households to _____ their desired money holdings, moving the interest rate to _____.

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Figure 34-6 -Refer to Figure 34-6. A shift of the money-demand curve from MD₂ to MD₁ is consistent with which of the following sets of events?

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $7 billion. An increase in government purchases of $40 billion will shift aggregate demand to the

When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through

Stock prices often rise when the Fed raises interest rates.

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run.

The Employment Act of 1946 states that

Figure 34-4 ​ ​ -2Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₂. If the Federal Reserve increases the money supply, and the price level does not change,

Suppose there is a tax decrease. To stabilize output, the Federal Reserve could

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Figure 34-2 (a) The Money Market (b) The Aggregate Demand Curve -Refer to Figure 34-2. A decrease in Y from Y₁ to Y₂ is explained as follows:

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Figure 34-9 ​ -Refer to Figure 34-9. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $_____ if there is no crowding-out. If crowding-out exists, then aggregate demand will likely to increase to $_____.

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

According to the liquidity preference theory, an increase in the overall price level of 10 percent