mac econ chapter 34

which of the following policy actions shift the aggregate demand curve?

an increase in the money supply an increase in taxes an increase in government spending

when the interest rate increases, the opportunity cost of holding money

increases so the quantity of money demanded decreases

if businesses and consumers become pessimistic, the federal reserve can attempt to reduce the impact on the price level and real GDP by

increasing the money supply, which lowers interest rates

What causes the money supply curve to shift?

shifts left when the feds conduct an open market sale of government bonds shifts right when the fed conducts an open market purchase of government bonds

What causes the money demand curve to shift?

shifts to the left when real GDP falls or the price level falls shifts to the right when real GDP rises or the price levels rise

what is discretionary monetary policy

the Feds ability to react dynamically to economic conditions

according to the theory of the liquidity preference

the demand for money is represented by a downward- sloping line on a supply and demand graph

using the liquidity preference model, when the federal reserve increases the money supply,

the equilibrium interest rate decreases

people choose to hold a smaller quantity of money if

the interest rate rises, which causes the opportunity cost of holding money to rise

shifts In the aggregate demand curve can cause fluctuations in

the level of output and in the level of prices

the interest rate falls if

the price level falls or the money supply rises

on the graph that depicts the theory of liquidity preference

the supply of money curve is vertical

if taxes increase

then consumption decreases, and aggregate demand shifts leftward.

how does the fed fight inflation

they decrease the money supply

how does the fed fight unemployment

they increase the money supply

shifts in aggregate demand affect the price level in

both the short and long run

which of the following fed actions would both increase the money supply

buy bonds and lower the reserve requirement

when the Fed sells government bonds, the reserves of the banking system

decrease, so the money supply decreases

when the interest rate decreases, the opportunity cost of holding money

decreases, so the quantity of money demanded increases

fiscal policy refers to the idea that aggregate demand is affected by changes In

government spending and taxes

which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment

increase government expenditures

according to the theory of liquidity preference, the money supply

is independent of the interest rate, while money demand is negatively related to the interest rate.

a reduction in US net exports would shifts US aggregate demand

leftward. In attempt to stabilize the economy the government could cut taxes

what is discretionally fiscal policy

non mandatory changes in taxation, spending, or other fiscal activities by a government in response to economic events or changes in economic conditions.