Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

If the inflation rate is zero, then the nominal and real interest rate are the same.

According to the theory of liquidity preference, an increase in the price level causes the

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

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

It is likely that a constitutional amendment that required the government always to run a balanced budget would

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.

Changes in the interest rate

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

Which of the following sequences best represents the crowding-out effect?

If the MPC is 5/6 then the multiplier is

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

The term crowding-out effect refers to

If households view a tax cut as temporary, then the tax cut

When the Fed buys government bonds, the reserves of the banking system

Figure 34-6. 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 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

An decrease in taxes shifts aggregate demand

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Keynes argued that

If the multiplier is 6, then the MPC is