Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which of the following policies would stabilization policy activists support when the economy is experiencing unemployment above the natural rate?

Which of the following terms refers to the positive feedback from aggregate demand to investment?

Assume that the MPC is 0.8.Assuming that only the multiplier effect matters,how will a decrease in government purchases of $15 billion shift the aggregate demand curve?

According to supply-side theories,which of the following happens if the government cuts the tax rate?

Both the multiplier and the investment accelerator tend to make the aggregate-demand curve shift farther than the increase in government expenditures.

Assume that the MPC is 0.8.Assume that there is a multiplier effect and that the total crowding-out effect is $7 billion.How will an increase in government purchases of $8 billion shift aggregate demand?

We have learned in previous chapters that fiscal policy can have lasting effects on savings,investment,and economic growth.On the other hand,this chapter seems to suggest that the only long-run effect of fiscal policy is an increase in the price level.How could you use the aggregate demand and supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?

If the Bank of Canada conducts open-market sales,how do the money supply and the aggregate demand change?

In which of the following situations do people want to hold more money?

According to which theory do changes in the interest rate bring the money market into equilibrium?

Which of the following shifts money demand to the left?

How do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?

Which of the following is consistent with the supply-side theories?

Assume that the MPC is 0.75.Assuming only the multiplier effect matters,how will an increase in government purchases of $400 billion shift the aggregate demand curve?

According to liquidity preference theory,when do people demand fewer goods and services?

Suppose the closed economy is in long-run equilibrium.Technological change shifts the long-run aggregate-supply curve $80 billion to the right.At the same time,government purchases increase by $40 billion.If the MPC equals 0.8 and the crowding-out effect is $70 billion,what would we expect to happen in the long-run to real GDP and the price level?

If there are automatic stabilizers but no deliberate action by policymakers,how would government expenditures and taxes change as output falls?

The economy is in long-run equilibrium when the government decides to significantly increase spending on transportation infrastructure,which will lower shipping costs for many businesses.What might we expect in the short run and the long run to happen to real GDP and the price level?

What are the effects of a change in taxes on consumption and aggregate demand?

Consider the income-expenditure identity in a closed economy,Y = C + I + G.Suppose consumption is always a fraction MPC of income,C = MPC×Y. a. Show that income Y is equal to (I + G)/(1 - MPC). b. Show that an increase in G by an amount DG increases income by DG/(1 - MPC) when investment is considered constant with respect to Y. What is the ratio 1/(1 - MPC) called?