Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

What is the difference between monetary policy and fiscal policy?

If the MPC is 0.80 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

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?

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

If the government cuts the tax rate,workers get to keep

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $40 billion to the left.The government wants to change its spending to offset this decrease in demand.The MPC is 0.60.Suppose the effect on aggregate demand from a change in taxes is 3/5 the size of the change from government expenditures.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

During recessions,the government tends to run a budget deficit.

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Which of the following statements is correct for the short run?

According to liquidity preference theory,investment spending would rise if the price level

Other things the same,as the price level rises,

If the Fed increases the money supply,

Opponents of active stabilization policy

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Both monetary policy and fiscal policy affect aggregate demand.

Monetary policy

The theory of liquidity preference assumes that the nominal supply of money is determined by the

The multiplier effect

For the following questions,use the diagram below: Figure 34-6. -Refer to Figure 34-6.If the economy is at point b,a policy to restore full employment would be