Macro Chapter 21
If the marginal propensity to consume (MPC) is 0.75, the value of the multiplier is
4
Which of the following statements regarding taxes is correct?
A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.
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.
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.
The long-run effect of an increase in the money supply is to
increase the price level
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 the AD to the right
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
decreases the quantity demanded for money
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
shifts the demand curve to the right and increases interest rate
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 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
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
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
Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by
the supply and demand for money
Which of the following is an automatic stabilizer?
unemployment benefits
Which of the following statements about stabilization policy is true?
Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy.
The initial impact of an increase in government spending is to shift
aggregate demand to the right.
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 policymakers choose to engage in activist stabilization policy, they should
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
