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

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

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?

The Kennedy tax cut of 1964 included an investment tax credit that was designed 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. What does Y represent on the horizontal axis of the right-hand graph?

Fiscal policy is determined by

Other things the same, which of the following happens if the price level rises?

In the long run, fiscal policy influences

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is

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?

According to the theory of liquidity preference, money demand

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

If the Fed increases the money supply,

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Figure 34-3 -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Explain how unemployment insurance acts as an automatic stabilizer.

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

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

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

If the MPC is 3/5 then the multiplier is