Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

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.

Figure 24-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money; on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs. -Refer to Figure 24-2.What does Y represent on the horizontal axis of the right-hand graph?

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

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.

The Fed can influence the money supply by changing the interest rate it pays banks on the reserves they are holding.

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Shifts in aggregate demand affect the price level in

In the long run,changes in the money supply affect

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Permanent tax cuts shift the AD curve

People will want to hold more money if the price level

Which of the following effects results from the change in the interest rate created by an increase in government spending?

Scenario 24-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 24-1.For this economy,an initial increase of $500 in net exports translates into a

The term crowding-out effect refers to

If the Federal Reserve increases the money supply,then initially there is a

Which of the following shifts aggregate demand to the right?

If the stock market crashes,then