econ 111 extra credit practice

the price of imported oil rises. if the government wanted to stabilize output which of the following could do it

increase government expenditures or increase the money supply

according to liquidity preference theory the slope of the money demand curve is explained as

people will want to hold more money as the cost of holding it falls

Liquidity preference theory is most revenant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance

the price level adjusts

to balance the supply and demand for money

critics of stabilization policy argue that

-there is a lag between the time policy is passed and the time policy has an impact on the economy -the impact of policy may last longer than the problem it was designed to offset -policy can be a source of, instead of a cure for, economic fluctuations

assuming a multiplier effect but no crowding-out or investment accelerator effects a $100 billion increase in government expenditures shifts aggregate

demand rightward by more than $100 billion

if the stock market booms then

aggregate demand increases which the fed could offset by decreasing the money supply

slope of aggregate demand curve

as the price level increases the interest rate rises so spending falls

the interest rate adjusts to

balance the supply and demand for loanable funds

output is determined by

the amount of capital labor and technology

Liquidity preference theory assumes

the interest rate adjusts to bring the money market into equilibrium

Shifts in the aggregate-demand curve can cause inflation

the level of output and in the level of prices

classical theory assumes

the price level adjusts to bring the money into equilibrium