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

If the marginal propensity to consume is 4/5,then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion.Suppose that the MPC is .80 and that there are no crowding out or accelerator effects.What is the combined effects of these changes? Why is the combined change not equal to zero?

In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.

Fiscal policy refers to the idea that aggregate demand is affected by changes in

In which of the following cases would the quantity of money demanded be smallest?

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

Other things the same,as the price level rises,

Figure 24-3. -Refer to Figure 24-3.Which of the following sequences (numbered arrows)shows the logic of the interest-rate effect?

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?

A decrease in the interest rate could have been caused by the money-demand curve shifting

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

People will want to hold less money if the price level

There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending.Which of the following is correct?

Which of the following shifts aggregate demand to the left?

Supply-side economists believe that a reduction in the tax rate

Figure 24-3. -Refer to Figure 24-3.What quantity is represented by the vertical line on the left-hand graph?

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

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

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

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.Assume the money market is always in equilibrium,and suppose r₁ = 0.08; r₂ = 0.12; Y₁ = 13,000; Y₂ = 10,000; P₁ = 1.0; and P₂ = 1.2.Which of the following statements is correct? When P = P₂,