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

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Suppose the government reduces taxes by $20 million, that there is no crowding-out effect, and that the marginal propensity to consume is 0.9.What is the total effect on aggregate demand? What would be the total effect on aggregate demand if the government increased purchases by $20 million?

(Essay)

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Question 21

Most economists believe that a cut in tax rates:

(Multiple Choice)

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Question 22

Suppose that equilibrium in the money market is described by the equation M = aP/r, where M is the money supply, P is the price level, r is the interest rate and a is a constant.Suppose that investment is described by the equation I = b - kr, where b and k are constants.Using the equation Y = C + I + G (where Y is GDP, C is consumption and G is government spending), show that a higher price level leads to lower GDP.

(Essay)

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Question 23

If MPC = 0.6, then the government purchases multiplier is:

(Multiple Choice)

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Question 24

Like a commodity, the money supply curve is upward sloping, reflecting the fact that the quantity of money supplied raises with the interest rate in the money market.

(True/False)

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Question 25

Which of the following is an automatic stabiliser?

(Multiple Choice)

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Question 26

Economists agree that:

(Multiple Choice)

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Question 27

The RBA can stimulate the economy by _, all of which shifts the aggregate demand to the _.

(Multiple Choice)

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Question 28

An increase in money demand will raise the equilibrium interest rate in the money market, holding all things constant.

(True/False)

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Question 29

The quantity of money demanded is _____ the interest rate.

(Multiple Choice)

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Question 30

The multipler > 1 represents a less than proportionate change on economic activity as a result of government spending.

(True/False)

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Question 31

The aggregate supply curve is _ in the short run, but _ in the long run.

(Multiple Choice)

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Question 32

Monetary policy affects the aggregate demand via the Reserve Bank changing its inflation target.

(True/False)

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Question 33

Fiscal policy refers to the idea that changes in:

(Multiple Choice)

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Question 34

According to _, net taxes _ during an economic expansion.

(Multiple Choice)

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Question 35

Personal income tax revenue and transfer payments act as automatic stabilisers because they fluctuate over the course of the business cycle.

(True/False)

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Question 36

If MPC = 0.9, then the government-purchases multiplier is:

(Multiple Choice)

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Question 37

Which of the following cannot stabilise a booming economy?

(Multiple Choice)

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Question 38

Suppose the government reduces taxes by $200 million, that there is no crowding-out effect, and that the marginal propensity to consume is 0.75.What is the total effect on aggregate demand?

(Multiple Choice)

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Question 39

Assume that the MPC is 0.5.A $100-billion cut in taxes will shift the aggregate-demand curve to the:

(Multiple Choice)

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Question 40

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

Suppose the government reduces taxes by $20 million, that there is no crowding-out effect, and that the marginal propensity to consume is 0.9.What is the total effect on aggregate demand? What would be the total effect on aggregate demand if the government increased purchases by $20 million?

Most economists believe that a cut in tax rates:

If MPC = 0.6, then the government purchases multiplier is:

Like a commodity, the money supply curve is upward sloping, reflecting the fact that the quantity of money supplied raises with the interest rate in the money market.

Which of the following is an automatic stabiliser?

Economists agree that:

The RBA can stimulate the economy by _____, all of which shifts the aggregate demand to the _____.

An increase in money demand will raise the equilibrium interest rate in the money market, holding all things constant.

The quantity of money demanded is _____ the interest rate.

The multipler > 1 represents a less than proportionate change on economic activity as a result of government spending.

The aggregate supply curve is _____ in the short run, but _____ in the long run.

Monetary policy affects the aggregate demand via the Reserve Bank changing its inflation target.

Fiscal policy refers to the idea that changes in:

According to _____, net taxes _____ during an economic expansion.

Personal income tax revenue and transfer payments act as automatic stabilisers because they fluctuate over the course of the business cycle.

If MPC = 0.9, then the government-purchases multiplier is:

Which of the following cannot stabilise a booming economy?

Suppose the government reduces taxes by $200 million, that there is no crowding-out effect, and that the marginal propensity to consume is 0.75.What is the total effect on aggregate demand?

Assume that the MPC is 0.5.A $100-billion cut in taxes will shift the aggregate-demand curve to the:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

Filters

The RBA can stimulate the economy by _, all of which shifts the aggregate demand to the _.

The aggregate supply curve is _ in the short run, but _ in the long run.

According to _, net taxes _ during an economic expansion.