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 multiplier for this economy is

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

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 r₃. Which of the following events would cause the equilibrium interest rate to decrease?

In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is

Because the liquidity-preference framework focuses on the

During recessions, taxes tend to

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

The Employment Act of 1946

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

A reduction in U.S net exports would shift U.S. aggregate demand

Economists who are skeptical about the relevance of "liquidity traps" argue that

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

The logic of the multiplier effect applies

Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

In the long run, fiscal policy primarily affects

Fiscal policy affects the economy

Figure 16-1 -Refer to Figure 16-1. If the current interest rate is 2 percent,

Monetary policy

In the short run,