Exam 20: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Other things being equal, an increase in the rate of interest causes a(n):

Monetarists argue that fiscal policy is ineffective because:

When there is an excess demand for money, individuals and businesses will attempt to purchase bonds.

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Assume the economy is in short-run equilibrium at a real GDP below its potential real GDP. According to Keynesian theory, which of the following policies should be followed?

The quantity theory of money of the Classical economists says that a change in the money supply will produce a:

Keynesian economists believe monetary policy is more effective than fiscal policy in stabilizing the business cycle.

Keynes called the money people hold in order to pay unforeseen or unexpected expenses the:

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

According to Keynesians, an increase in the money supply will:

The precautionary demand for money is the demand for money:

Exhibit 20-6  Money, investment and product markets In Exhibit 20-6, if the Fed believes the economy is at AD₃, how might it engineer a decline in the price level?

An increase in the money supply:

When people hold money to transact purchases they expect to make, this is known as the:

The stock of money people hold to pay everyday predictable expenses is the:

Exhibit 20A-4  Macro AD/AS Model As shown in Exhibit 20A-4, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E₁ to full employment.

If the economy is experiencing an inflationary gap, classical economists argue that the Federal Reserve should lower interest rates.

The transmission mechanism is the effect of changes in monetary policy on the stock market.

Monetarists reject using discretionary monetary policy as an effective stabilization tool because they believe:

Monetarists accept the idea that velocity is not constant; nonetheless, they believe that it is still highly: