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

Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.

If inflation is zero, then the nominal and real interest rates are the same.

How does the interest rate change when the price level falls and when the money supply falls?

How does an increase in the interest rate affect the demand for goods and services?

Which term refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

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

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

Which of the following shifts money demand to the left?

What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Which of the following best defines automatic stabilizers?

Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?

Why do people primarily own or hold money?

Which of the following defines the government purchases multiplier?

Unemployment insurance and welfare programs work as automatic stabilizers.

Which policy would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?

Which of the following shifts money demand to the right?

Which of the following factors mostly determines the lag problem associated with monetary policy?

According to most economists, what will a cut in tax rates do?

During recessions, the government tends to run a budget deficit.