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

"Monetary policy can be described either in terms of the money supply or in terms of the interest rate." This statement amounts to the assertion that

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

As the MPC gets close to 1, the value of the multiplier approaches

Assume the MPC is 0.8. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the

An decrease in taxes shifts aggregate demand

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?

The most important reason for the slope of the aggregate-demand curve is that as the price level

Tax increases

Figure 34-10 -Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An increase in government purchases of $10 will increase aggregate demand to $ if there is no crowding-out. If crowding- out exists, then aggregate demand will likely to increase to $ .

A decrease in taxes ____ aggregate demand through larger _____ by households.

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

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

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

According to liquidity preference theory, if there were a surplus of money, then

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Paul Samuelson, a famous economist, said that

If the Fed conducts open-market sales, which of the following quantities increases)?

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"