Chapter 24 Econ

In the short run, open-market purchases

increase investment and real GDP, and decrease nominal interest rates.

Other things the same, a decrease in the U.S. interest rate

induces firms to invest more.

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

investment spending, but not interest rates

During recessions, automatic stabilizers tend to make the government's budget

move toward deficit.

Liquidity preference theory is most relevant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

The primary argument against active monetary and fiscal policy is that

these policies affect the economy with a long lag.

If the stock market crashes, then

aggregate demand decreases, which the Fed could offset by increasing the money supply.

Which of the following shifts aggregate demand to the right?

an increase in the money supply

Critics of stabilization policy argue that a. there is a lag between the time policy is passed and the time policy has an impact on the economy. b. the impact of policy may last longer than the problem it was designed to offset. c. policy can be a source of, instead of a cure for, economic fluctuations. d. All of the above are correct.

d. All of the above are correct.

According to liquidity preference theory, the opportunity cost of holding money is

the interest rate on bonds.

On the graph that depicts the theory of liquidity preference,

the supply-of-money curve is vertical.