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

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. Assume the money market is always in equilibrium. Under the assumptions of the model,

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

When Congress reduces spending in order to balance the government's budget, it needs to consider

The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will also stabilize _____ and _____.

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

In recent years, the Federal Reserve has conducted policy by setting a target for the

Changes in the interest rate help explain

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate- demand curve, since U.S. wealth is large relative to wealth in most other countries.

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

Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rate rise.

If people decide to hold less money, then

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

If the Federal Reserve increases the money supply, then initially people want to

If the MPC is 0, then the multiplier is

If the marginal propensity to consume is 6/7, then the multiplier is 7.

According to the theory of liquidity preference, if output decreases

A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president's economists estimated the multiplier to be

When households find themselves holding too much money, they respond by

Which of the following events shifts aggregate demand rightward?

A decrease in taxes ____ aggregate demand through larger _____ by households.