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

If the MPC is 0.75 and there are no crowding-out or accelerator effects, an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

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Question 1

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We have learned in previous chapters that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, thisChapter 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?

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Question 2

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If we accept that fiscal policies increase growth in the future, then they should shift the long-run aggregate-supply curve to the right. The next graph, in which the short-run aggregate-supply curve is not shown, illustrates this point. In the medium and long run the economy moves from A to B, then to C. Thus, output increases by more and the price level increases by less than the basic model would suggest. Fiscal policies that improve infrastructure, health, and education are more likely to have long-run growth effects. Fiscal policies that subsidize consumption or encourage borrowing are less likely to have lasting effects on output.

Which action might we logically expect to result from rising stock prices?

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Question 3

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In the long run, what do changes in the money supply affect?

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Question 4

If expected inflation is constant and the nominal interest rate increased 3 percentage points, what would happen to the real interest rate?

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Question 5

Suppose that consumers become pessimistic about the future health of the economy, and so cut back on their consumption spending. What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

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Question 6

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

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Question 7

Use the money market to explain why the aggregate demand curve slopes downward.

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Question 8

According to Keynes, what concept did aggregate demand play a key role in explaining?

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Question 9

What does fiscal policy primarily affect in the short run?

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Question 10

How do tax cuts and government expenditure affect aggregate demand?

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Question 11

According to liquidity-preference theory, what is the shape of the money-supply curve?

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Question 12

In a small open economy with a flexible exchange rate, what will an expansionary fiscal policy cause?

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Question 13

Why are monetary authorities concerned about stock market booms?

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Question 14

Which term refers to the positive feedback from aggregate demand to investment?

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Question 15

According to liquidity-preference theory, when would the money-supply curve shift right?

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Question 16

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

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Question 17

In which situation do people want to hold less money?

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Question 18

Which policy alternative would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

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Question 19

According to liquidity-preference theory, how does an increase in the price level affect the interest rate and output demanded, respectively?

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Question 20

Showing 1 - 20 of 223

If the MPC is 0.75 and there are no crowding-out or accelerator effects, an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

Which action might we logically expect to result from rising stock prices?

In the long run, what do changes in the money supply affect?

If expected inflation is constant and the nominal interest rate increased 3 percentage points, what would happen to the real interest rate?

Suppose that consumers become pessimistic about the future health of the economy, and so cut back on their consumption spending. What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Use the money market to explain why the aggregate demand curve slopes downward.

According to Keynes, what concept did aggregate demand play a key role in explaining?

What does fiscal policy primarily affect in the short run?

How do tax cuts and government expenditure affect aggregate demand?

According to liquidity-preference theory, what is the shape of the money-supply curve?

In a small open economy with a flexible exchange rate, what will an expansionary fiscal policy cause?

Why are monetary authorities concerned about stock market booms?

Which term refers to the positive feedback from aggregate demand to investment?

According to liquidity-preference theory, when would the money-supply curve shift right?

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

In which situation do people want to hold less money?

Which policy alternative would be an appropriate response to an increase in investment demand by a government that wants to stabilize output?

According to liquidity-preference theory, how does an increase in the price level affect the interest rate and output demanded, respectively?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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