Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is

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

Other things equal, in the short run a lower price level leads households to

A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and cause output to _____. Due to the crowding-out effect, investment will _____.

If the government cuts the tax rate, workers get to keep

When the Federal Funds rate is above the Federal Reserve's target, it will ____ bonds to _____ the money supply.

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

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

An increase in the money supply will

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

To reduce aggregate demand, the government may reduce or increase .

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

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

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

If the stock market crashes, then

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

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.

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Stock prices often rise when the Fed raises interest rates.

Which of the following events would shift money demand to the right?