Econ 2040 Exam 4 Ch. 21 Review Questions

If the MPC = 0.85, then the government purchases multiplier is about

6.67.

Which among the following assets is the most liquid?

funds in a checking account

According to the liquidity preference theory, an increase in the overall price level of 10 percent

increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.

The interest rate falls if

money demand shifts left or money supply shifts right.

Which of the following policy actions shifts the aggregate-demand curve?

-an increase in the money supply -an increase in taxes -an increase in government spending

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

0.75 and the multiplier is 4.

Which of the following shifts aggregate demand to the right?

The Fed purchases government bonds on the open market.

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

demand rightward by more than $100 billion.

The interest-rate effect

depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.

In which of the following cases would the quantity of money demanded be smallest?

r = 0.06, P = 1.0

Other things the same, automatic stabilizers tend to

raise expenditures during recessions and lower expenditures during expansions.