Exam 34: The Influence of Monetary and Fiscal Policy on 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. For this economy, an initial increase of $500 in government purchases translates into a

According to liquidity preference theory, a decrease in the price level shifts the

If the Federal Reserve's goal is to stabilize aggregate demand, then it will the money supply in response to a stock market boom. This causes interest rates to .

Changes in the interest rate

The goal of monetary policy and fiscal policy is to

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?

Consider the following sequence of events: price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ Τhis sequence explains why the

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Macroeconomic forecasts are

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

A reduction in personal income taxes increases Aggregate Demand through

When households decide to hold more money,

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

If the interest rate decreases

Which of the following is correct?

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

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