Chapter 21 SG

The initial impact of an increase in government spending is to shift..?

Aggregate demand to the right

Keynes's liquidity preference theory of the interest rate suggest that the interest rate is determined by...

The supply and demand for money

The long-run effect of an increase in the money supply is to?

increase the price level

Suppose a wave of investor and consumer optimism has increased spending so that the current level of output exceeds the long-run natural rate. If policy makers choose to engage in activist stabilization policy, they should do what with government spending?

Decrease government spending, which shifts aggregate demand to the left

The initial effect of an increase in the money supply is to?

Decrease the interest rate

When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate does what to the quantity of demanded money?

Decreases the quantity demanded of money

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 does what to the value of the multiplier?

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

When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level does what to money demand and the interest rate?

Shifts money demand to the right and increases the interest rate

When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of...

The Crowding-out effect

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

For the United States, the most important source of the downward slope of the aggregate-demand curve is ..?

The interest rate effect

When an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of?

The investment accelerator