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

If there is excess money supply,what will people do and what happens to the interest rate?

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

According to the theory of liquidity preference,how is the money supply affected by the interest rate?

According to liquidity-preference theory,other things being equal,what does a higher price level lead households to do in the short run?

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?

The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $20 billion.The marginal propensity to consume is MPC = 75 and the marginal propensity to import is MPI = .20.Suppose the crowding-out effect is twice the amount of government spending. a.In a closed economy,what is the increase in output caused by the stimulus package of $20 billion? b.What is the increase in output if the economy is open?

The multiplier is equal to MPC / (1 - MPC).

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

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

In a small open economy with a flexible exchange rate,what does a monetary injection cause?

According to Keynes,what concept did aggregate demand play a key role in explaining?

Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

If the MPC = 3 / 4,what is the government purchases multiplier?

If the stock market crashes,what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

Which term refers to the reduction in demand that results when a fiscal expansion raises the interest rate?