Chapter 34 Pop Quiz

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 (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 aggregate demand to the right

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 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

Which of the following is an automatic stabilizer?

unemployment benefits

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

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

aggregate demand to the right

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

decrease the interest rate