Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the money supply decreases the interest rate in the short run.

Monetary policy

The exchange-rate effect is based, in part, on the idea that

Permanent tax changes have a effect on aggregate demand compared to temporary tax changes.

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in aggregate demand?

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Changes in the interest rate help explain

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

What is the value of the multiplier if the marginal propensity to consume is 0.5?

A reduction in U.S net exports would shift U.S. aggregate demand

In which of the following cases does the aggregate-demand curve shift to the right?

For the following questions, use the diagram below: Figure 34-7 -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

The term crowding-out effect refers to

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Which among the following assets is the most liquid?

Which U.S. president, when asked why he had proposed a tax cut, responded by saying "To stimulate the economy. Don't you remember your Economics 101?"