Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Figure 16-2. 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 16-2. 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?

Other things the same, automatic stabilizers tend to

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Figure 16-2. 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 16-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

The process of the investment accelerator involves

Which of the following policy actions shifts the aggregate-demand curve?

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Figure 16-2. 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 16-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

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

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Assume the MPC is 0.80. The multiplier is

In the short run, open-market sales

If the Fed conducts open-market sales, the money supply

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then

Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the current equilibrium interest rate is r₁. Which of the following events would cause the equilibrium interest rate to increase?

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

Figure 16-6. 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 16-6. Suppose the multiplier is 5 and the government increases its purchases by $10 billion. Also, suppose the AD curve would shift from AD₁ to AD₂ if there were no crowding out; the AD curve actually shifts from AD₁ to AD₃ with crowding out. Also, suppose the horizontal distance between the curves AD₁ and AD₃ is $20 billion. The extent of crowding out, for any particular level of the price level, is

Supply-side economists focus more than other economists on