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

Assume the money market is initially in equilibrium. If the price level increases, according to liquidity preference theory, what is in excess and for how long?

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Which of the following terms refers to the positive feedback from aggregate demand to investment?

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

In which of the following situations do people want to hold less money?

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

For the following questions, consult the diagram below. Figure 15-2 -Refer to Figure 15-2. Which of the following can happen in a closed economy?

Assuming the crowding-out effect but no multiplier or investment-accelerator effects, what is the effect of a $500 billion increase in government expenditures on the aggregate demand or supply?

In a small open economy with a flexible exchange rate, a monetary injection by the Bank of Canada causes which of the following?

Compare the classical model of money market with the liquidity preference model. a.Are they consistent with each other? b.Draw the classical money demand curve in a Price-Quantity-of-money diagram. c.How does your money demand curve shift when income, Y, increases? d.Use your classical money demand diagram to derive an aggregate demand curve.

In a small open economy with a flexible exchange rate, a monetary injection causes which of the following?

What does a monetary injection by the Bank of Canada do to interest rates and aggregate demand?

Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level?

Which of the following statements do opponents of active stabilization policy believe?

Explain how unemployment insurance acts as an automatic stabilizer.

What do open-market purchases do to the price level and real GDP?

What is the main reason the aggregate demand curve slopes downward?

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

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

Which of the following shifts aggregate demand right?