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

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Because the liquidity-preference framework focuses on the

A decrease in government spending initially and primarily shifts

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?

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

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?

If the spending multiplier is 8, then the marginal propensity to consume must be 7/8.

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

In recent years, the Federal Reserve has conducted policy by setting a target for the

Figure 34-7 -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

The goal of monetary policy and fiscal policy is to

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

When households find themselves holding too much money, they respond by

When the Federal Reserve conducts an open-market purchase, the money supply and aggregate demand _____.

Keynes argued that aggregate demand is

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

Opponents of active stabilization policy

Figure 34-1 -Refer to Figure 34-1. If the current interest rate is 2 percent,