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

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Liquidity refers to

Which of the following statements generates the greatest amount of disagreement among economists?

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP?

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

In the short run, a decrease in the money supply causes interest rates to

The government increases both its expenditures and taxes by $400 billion. There is no crowding out and no accelerator effect. Aggregate demand shifts by $400 billion. Which of the following is consistent with how far aggregate demand shifts?

Which of the following shifts aggregate demand to the right?

Because the liquidity-preference framework focuses on the

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

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?

When the interest rate increases, the opportunity cost of holding money

In which of the following cases would the quantity of money demanded be largest?

In the graph of the money market, the money supply curve is

Which of the following statements is correct for the long run?

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

Both monetary policy and fiscal policy affect aggregate demand.

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

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

If the interest rate is above the Fed's target, the Fed should