macro quiz

policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right

suppose the graphs are drawn to show the effects of an increase in government purchases, if it were not for the increase in r from r1 to r2, then

all of the above are correct

the multiplier effect

amplifies the effects of an increase in government expenditures, while the crowding out effect diminishes the effects

to reduce the effects of crowding out caused by an increase in government expenditures, the federal reserve could

increase the money supply by buying bonds

if expected inflation is constant, then when the nominal interest rate increases, the real interest rate

increases by the change in the nominal interest rate

when the money supply decreases

interest rates rise and so aggregate demand shifts left

which of the following did the fed do during the recession of 2008-2009

lowered the federal funds rate and purchased securities and loans

assume the multiplier is 5 and that the crowding out effect is 20 billion. an increase in government purchases of 10 billion will shift the aggregate demand curve to the

right by 30 billion

suppose the economy is in long run equilibrium. if the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

rise. this rise in price expectations shifts the short run aggregate supply curve to the left

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

the equilibrium interest rate decreases

the term crowding out effect refers to

the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase

if the economy starts at C, an increase in the money supply moves the economy

to A in the long run

the logic of the multiplier effect applies

to any change in spending on any component of gdp

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

decrease, so the money supply decreases