ECO 202 Final
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall
Which of the following shifts both short run and long run aggregate supply left?
a decrease in the capital stock
Which of the following would cause investment spending to decrease and aggregate demand to shift left?
a decrease in the money supply and the repeal of an investment tax credit
Supposed businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift
aggregate demand left
When the interest rate is above the equilibrium level,
all of the above are correct
Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely
any of the above outcomes are possible
When the interest rate increases, the opportunity cost of holding money
increases, so the quantity of money demanded decreases
The theory of liquidity preference illustrates the principle that
monetary policy can be described either in terms of the money supply or in terms of the interest rate
According the the Phillips curve, policymakers could reduce both inflation an unemployment by
none of the above is correct
The goal of monetary policy and fiscal policy is to
offset shifts in aggregate demand and thereby stabilize the economy
When there is an excess supply of money,
people will try to get rid of money causing interest rates to fall. Investment increases.
If policymakers expand aggregate demand, then in the long run
prices will be higher and unemployment will be lower
Which of the following is not included in aggregate demand?
purchases of stock and bonds
The model of aggregate demand and aggregate supply explains the relationship between
real GDP and the price level
Changes in the price level affect which components of aggregate demand?
consumption, investment and net exports
Which of the following adjust to bring aggregate supply and demand in to balance?
the price level and real output
The short run Phillips curve shows the combinations of
unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short run aggregate supply curve
According to liquidity preference theory, the money supply curve is
vertical
Tax cuts shift aggregate demand
right as do increases in government spending
If the interest rate is below the Fed's target, the Fed would
sell bonds to decrease the money supply
People hold money primarily because it
serves as a medium of exchange
Monetary policy is determined by
the Federal Reserve and involves changing the money supply
Which of the following shifts aggregate demand to the right?
the Federal Reserve buys bonds
If the MPC = 4/5, then the government purchases multiplier is
5
Which of the following is correct?
a. A higher price level shifts money demand rightward b. When money demand shifts rightward, the interest rate rises c. A higher interest rate reduces the quantity of goods and services demanded d. All of the above are correct
According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will
decrease and the quantity of money demanded will increase
When the Fed sells government bond, the reserves of the banking system
decrease, so the money supply decreases
When taxes increase, consumption
decreases as shown by a shift of the aggregate demand curve to the left
People will want to hold less money if the price level
decreases or if the interest rate decreases
A decrease in government spending
decreases the interest rate and so investment spending increases
People are likely to want to hold more money if the interest rate
decreases, making the opportunity cost of holding money fall
Which of the following would not be included in aggregate demand?
government's tax collections
According to liquidity preference theory, the money supply curve would shift rightward
if the Federal Reserve chose to increase the money supply
Liquidity refers to
the ease with which an asset is converted into a medium of exchange
According to John Maynard Keynes
the interest rate adjusts to balance the supply of, and demand for, money
According to liquidity preference theory, the opportunity cost of holding money is
the interest rate on bonds
The aggregate supply curve is upward sloping in
the short run, but not the long run
The wealth effect, interest rate effect, and exchange rate effect are all explanations for
the slope of the aggregate demand curve
When the Fed buys bonds
the supply of money increases and so aggregate demand shifts right
The long run aggregate supply curve shifts left if
there is a natural disaster