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

Scenario 16-2. The following facts apply to a small, imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 16-2. The marginal propensity to consume for this economy is

Marcus is of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. Most economists would say that Marcus's opinion is

Which among the following assets is the most liquid?

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?

Assume the MPC is 0.625. Assuming only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve to the

Which of the following shifts aggregate demand to the right?

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

The theory of liquidity preference illustrates the principle that

Which of the following Fed actions would both increase the money supply?

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

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

A tax cut shifts aggregate demand

Other things the same, during recessions taxes tend to

According to classical macroeconomic theory,

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

When the Fed buys government bonds, the reserves of the banking system

Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?

Scenario 16-2. The following facts apply to a small, imaginary economy. • Consumption spending is $5,200 when income is $8,000. • Consumption spending is $5,536 when income is $8,400. -Refer to Scenario 16-2. In response to which of the following events could aggregate demand increase by $1,500?

Keynes argued that

In response to the sharp decline in stock prices in October 1987, the Federal Reserve