Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

The positive feedback from aggregate demand to investment is called

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Explain how unemployment insurance acts as an automatic stabilizer.

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

The lag problem associated with monetary policy is due mostly to

If the Federal Reserve decreases the money supply, then initially there is a

When the interest rate is below the equilibrium level,

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

The theory of liquidity preference illustrates the principle that

Which of the following actions might we logically expect to result from rising stock prices?

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Tax increases

Some economists argue that

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. 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?

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Changes in the interest rate

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

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

People will want to hold less money if the price level