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

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Shifts in aggregate demand affect the price level in

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

A decrease in government spending initially and primarily shifts

Which of the following statements generates the greatest amount of disagreement among economists?

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

In the early 1960s, the Kennedy administration made considerable use of

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

Fiscal policy affects the economy

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

An increase in the MPC

Which of the following policy actions shifts the aggregate-demand curve?

According to liquidity preference theory,

Most economists believe that fiscal policy

Which of the following sequences best explains the negative slope of the aggregate-demand curve?