Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: Part A

To increase output,policymakers can ----- the money supply,----- taxes,and/or ----- government purchases.

There are three factors that help explain the slope of the aggregate demand curve.Which two are less important? Why are they less important?

The theory of ----- states that the ----- adjusts to bring money supply and money demand into balance.

Figure 34-12 -Refer to Figure 34-12.Suppose the multiplier is 5 and the economy is currently at point A.To stabilize output at $1000,the government should ----- purchases by $-----.

When the interest rate is above equilibrium,there is excess ----- of money.Households will ----- interest-earning assets,which ----- the interest rate.

Changes in aggregate demand can cause fluctuations in ----- and ----- in the short run,and only ---- in the long run.

When there is an excess demand for money,households will ----- interest-bearing bonds,causing interest rates to -----.

The wealth-effect notes that a ----- price level increases the real value of households' wealth.The larger real wealth ----- the quantity of goods and services demanded.

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

Figure 34-14 -Refer to Figure 34-14.Households' desired money holdings are given by MD₁.If the current rate of interest is r₃,then there is excess -----.Households will ----- interest-earning assets,which causes the interest rate to -----.

Last year,total income increased $1,000 and consumption increased $800.An increase in government spending equal to $10 would cause output to increase by $----- because the multiplier is ------.

When the money supply increases,there is an excess ----- of money.As a result,interest rates ----- and aggregate demand -----.

What is the value of the multiplier if the marginal propensity to consume is 0.5?

The ease with which an asset can be converted into the medium of exchange is known as -----.

To reduce aggregate demand,the government may reduce ----- or increase -----.

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the -----.

Figure 34-10 -Refer to Figure 34-10.Suppose the multiplier is 2 and there is no crowding-out,but there is an accelerator effect.If the economy is currently at point A,then an increase in government purchases of $10 will likely increase aggregate demand to point ----- where output is $-----.

A decrease in taxes ---- aggregate demand through larger ----- by households.

Figure 34-10 -Refer to Figure 34-10.Suppose the multiplier is 4 and the economy is currently at point A.An increase in government purchases of $10 will increase aggregate demand to $----- if there is no crowding-out.If crowding-out exists,then aggregate demand will likely to increase to $-----.

Figure 34-13 -Refer to Figure 34-13.The economy is currently at point A.Given the current situation,the Federal Reserve will ----- bonds,which causes interest rates to -----.