Chapter 34 Pop Quiz
Suppose a wave of investor and consumer pessimism causes a reduction in spending. If the Federal Reserve chooses to engage in activist stabilization policy, it should
increase the money supply and decrease interest rates.
An increase in the marginal propensity to consume (MPC )
raises the value of the multiplier
In the market for real output, the initial effect of an increase in the money supply is to
shift aggregate demand to the right
Suppose the government increases its purchases by $16 billion. If the multiplier effect exceeds the crowding-out effect, then
the aggregate-demand curve shifts to the right by more than $16 billion.
When an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of
the investment accelerator
When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of
the multiplier effect
Which of the following is an automatic stabilizer?
unemployment benefits
Which of the following best describes how an increase in the money supply shifts aggregate demand?
The money supply shifts right, the interest rate falls, investment increases, and aggregate demand shifts right
The initial impact of an increase in government spending is to shift
aggregate demand to the right
The initial effect of an increase in the money supply is to
decrease the interest rate