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

Assuming the crowding-out effect but no multiplier or investment-accelerator effects, what is the effect of a $600 billion increase in government expenditures on the aggregate demand or supply?

Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate-supply curve $120 billion to the right. At the same time, government purchases increase by $50 billion. If the MPC equals 0.8 and the crowding-out effect is $80 billion, what would we expect to happen in the long run to real GDP and the price level?

During recessions, how do automatic stabilizers change government deficit and taxes?

For the Canadian economy, what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

Which of the following do critics of stabilization policy argue?

What effects do supply-side economists believe that lowering taxes have?

Canada is a small open economy with a flexible exchange rate. Which effect will a contractionary fiscal policy have?

Which statement is consistent with the supply-side theories?

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?

Which statement best illustrates how the investment accelerator works?

Figure 15-1 -Refer to the Figure 15-1. What will happen if the current interest rate is 2 percent?

Suppose that the government spends more on a missile defence program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, and investment-accelerator effects?

According to liquidity-preference theory, what is the opportunity cost of holding money?

Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?

Which statement is consistent with the long-run theories studied?

Figure 15-1 -Refer to the Figure 15-1. What is most likely to happen if the interest rate is equal to 4?

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

If the multiplier is 5, what is the MPC?

Suppose that the MPC is 0.5 and there is no investment accelerator or crowding-out effects. If government expenditures increase by $200 billion, what happens to aggregate demand?