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

According to liquidity preference theory,a decrease in money demand for some reason other than a change in the price level causes

According to liquidity preference theory,the money-supply curve would shift if the Fed

According to classical macroeconomic theory,

Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the money-demand curve is currently MD₂.If the current interest rate is r₂,then

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the current equilibrium interest rate is r₃.Which of the following events would cause the equilibrium interest rate to decrease?

According to the liquidity preference theory,an increase in the overall price level of 10 percent

The short-run effects on the interest rate are

To stabilize interest rates,the Federal Reserve will respond to an increase in money demand by

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

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Which of the following events could explain a decrease in the equilibrium interest rate from r₁ to r₃?

People might withdraw money from interest-bearing accounts,

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the current equilibrium interest rate is r₃.Let Y₃ represent the corresponding quantity of goods and services demanded,and let P₃ represent the corresponding price level.Starting from this situation,if the Federal Reserve decreases the money supply and if the price level remains at P₃,then

Other things equal,in the short run a lower price level leads households to

Figure 34-2.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 34-2.A decrease in Y from Y₁ to Y₂ is explained as follows:

The interest rate falls if

The wealth effect stems from the idea that a higher price level

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

If,at some interest rate,the quantity of money supplied is less than the quantity of money demanded,people will desire to