Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

If the marginal propensity to consume is 5/6, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by

As the interest rate falls,

Suppose that there are no crowding-out effects and the MPC is .9. By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Other things the same, during recessions taxes tend to

Assume the MPC is 0.80. The multiplier is

If taxes

The interest-rate effect

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Most economists believe that a cut in tax rates

Which of the following events would shift money demand to the right?

If the Fed increases the money supply,

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

During the economic downturn of 2008-2009, the Federal Reserve

Scenario 21-2. The following facts apply to a small, imaginary economy.• Consumption spending is $5,200 when income is $8,000.• Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 21-2. In response to which of the following events could aggregate demand increase by $1,500?