Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

If the multiplier is 3, then the MPC is

Figure 34-2. 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 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

The logic of the multiplier effect applies

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

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

According to the theory of liquidity preference, money demand

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

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

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

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

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

If the MPC is 4/5, the multiplier is 5/4.

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.

Liquidity preference theory is most relevant to the

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