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

According to liquidity-preference theory, if the price level increases, how do the equilibrium interest rate and the aggregate quantity of goods change?

The theory of liquidity preference assumes that the nominal supply of money is determined by which of the following?

What is most likely to happen in the short run?

How does a stock market boom affect household spending, and how would the Bank of Canada offset the effects on the price level and real GDP?

Which of the following is the most liquid asset?

Why and in what way are fiscal policy lags different from monetary policy lags?

Which statement is consistent with the Keynesian theory?

According to liquidity-preference theory, if the quantity of money supplied is greater than the quantity demanded, what will happen to the interest rate and the quantity of money demanded?

If the multiplier is 10, what is the MPC?

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

When does the opportunity cost of holding money decrease or increase, and how does people's desire to hold money change?

Over what period of time is the liquidity-preference theory most relevant, and what does it suppose?

If there is excess money demand, what will people do and what happens to the interest rate?

Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.9, by how much do government purchases have to rise?

In which situation do people want to hold more money?

Assume that the MPC is 0.75. Assuming only the multiplier effect matters, how will an increase in government purchases of $200 billion shift the aggregate demand curve?

If the Bank of Canada allows the exchange rate to vary freely, which effect will an expansionary fiscal policy have?

According to liquidity-preference theory, why is the money-demand curve downward sloping?

Which of the following shifts aggregate demand to the right?

During recessions, what do taxes tend to do, and to what effect?