ECO 202 Final

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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


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