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

To eliminate a deflationary gap when the MPC is 0.75 and the deflationary gap is $500 million, investment will need to increase by how much?

According to classical macroeconomic theory, an increase in aggregate demand will _____ in the long run.

Suppose we observe that an increase in government spending of $10 billion raises the total aggregate demand by $40 billion.If there is no crowding-out effect, what would be the marginal propensity?

Suppose government purchases increase by $100 billion, that there is no crowding-out effect, and that the marginal propensity to consume is 0.8.What is the total effect of this increase in government purchases?

At a higher price level, the demand for money increases, the interest rate increases, and the demand for business and residential investment falls.Hence the aggregate-demand curve slopes downward.

The two macroeconomic effects that make the size of the shift in aggregate demand differ from the change in government purchases are:

Suppose government purchases increase by $200 billion, that there is no crowding-out effect, and that the marginal propensity to consume is 0.75.What is the total effect of this increase in government purchases?

Is the effect of an election cycle (every three years) putting at risk long-term structural changes to the economy?

The multiplier effect suggests that the increase in aggregate demand could be smaller than the increase in government purchases, while the crowding-out effect suggests that the increase in aggregate demand could be larger than the increase in government purchases.

According to the RBA's policy guidelines, if the RBA sees rising inflation, it would then increase interest rates.

The money demand curve shifts to the right if there is _____, causing the equilibrium interest rate to _____.

Any change in government spending has a multiplier effect on the level of economic activity.

A rise in the inflation target by the RBA through monetary policy, means the:

The government reduces taxes by $20 million.Suppose 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?

In the long run, the interest rate and inflation rate adjust to accommodate a fixed level of output.In the short run, the interest rate and output adjust to accommodate a predetermined level of prices.

In the liquidity preference theory, money is the most liquid asset and used as a medium of exchange.

In order to fight recession, the RBA has to raise its inflation target in order to reduce the real interest rate needed to stimulate the aggregate demand.

The theory of Ricardian equivalence suggests that an increase in public saving will be balanced by an increase in private saving.

The government-purchases multiplier is defined as:

The money-demand curve is downward-sloping because: