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

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Consider the following sequence of events: price level $\uparrow \Rightarrow$ demand for money $\uparrow \Rightarrow$ equilibrium interest rate $\uparrow$ $\Rightarrow$ quantity of goods and services demanded $\darr$ This sequence explains why the

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

According to liquidity preference theory, the money-supply curve would shift if the Fed

Figure 21-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 21-4. Suppose the money-demand curve is currently MD₁. If the current interest rate is r₂, then

If the Fed conducts open-market purchases, the money supply

Which of the following correctly explains the crowding-out effect?

Explain how unemployment insurance acts as an automatic stabilizer.

Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange rate. Which policies could be used to offset the resulting change in output?

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

When Congress reduces spending in order to balance the government's budget, it needs to consider

Liquidity preference theory is most relevant to the

In the long run, the level of output

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

There are three factors that help explain the slope of the aggregate demand curve. Which two are less important? Why are they less important?

An increase in the money supply shifts the aggregate-supply curve to the right.

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Which of the following Fed actions would both increase the money supply?

Liquidity refers to