Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Which of the following illustrates how the investment accelerator works?

The lag problem associated with monetary policy is due mostly to

Other things the same, automatic stabilizers tend to

Which of the following is an example of an increase in government purchases?

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

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

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

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

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

Critics of stabilization policy argue that

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

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

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?

The short-run effects on the interest rate are

The theory of liquidity preference assumes that the nominal supply of money is determined by the

If the Fed conducts open-market sales, the money supply

Assume the following. • The MPC has a value of 0.8. • The relationship between the interest rate, r, and investment, I, is given by the equation, I = 20,000 - br, Where b is a positive constant. • Government purchases, G, are increased by $1,000. In which of the following cases would there be no crowding out?

The interest-rate effect

The additional shifts in aggregate demand that result when there is an increase in government spending is known as the _____.