module 5 quiz

Which of the following would cause stagflation?

Aggregate supply shifts left.

Which of the following events shifts aggregate demand rightward?

An increase in government expenditures, but not a change in the price level

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 properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

As the price level increases, the interest rate rises, so spending falls.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right.

When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through

purchases of government bonds, which reduces interest rates and causes people to hold more money.

If the interest rate is below the Fed's target, the Fed should

sell bonds to decrease the money supply.

The Federal Open Market Committee is ​

​the group at the Federal Reserve that sets monetary policy.

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts right.

Aggregate demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

If taxes

decrease, then consumption increases, and aggregate demand shifts rightward.

If households view a tax cut as temporary, then the tax cut

has less of an effect on aggregate demand than if households view it as permanent.

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows:

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent. "

If the MPC is 3/5 then the multiplier is

2.5, so a $100 increase in government spending increases aggregate demand by $250.

Which of the following shifts aggregate demand to the left?

A decrease in the money supply