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.
