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8454 The Influence of Monetary and Fiscal Policy on Aggregate Demand
22.
If the Federal Reserve’s goal is to stabilize aggregate demand, then in response to an increase in
money demand, the Federal Reserve will _____ the money supply.
23.
To stabilize output, the Federal Reserve will the money supply when aggregate demand
falls.
24.
The government’s choices regarding the overall level of government purchases and taxes is
known as _____.
25.
To reduce aggregate demand, the government may reduce or increase .
26.
The additional shifts in aggregate demand that result when there is an increase in government
spending is known as
the _____.
27.
What is the value of the multiplier if the marginal propensity to consume is 0.5?
28.
A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a
$_____ billion reduction in aggregate demand if the MPC is 0.75.
29.
Last year, total income increased $1,000 and consumption increased $800. An increase in
government spending equal to $10 would cause output to increase by $_____ because the
multiplier is ______.
8456 The Influence of Monetary and Fiscal Policy on Aggregate Demand
Figure 34-10
30.
Refer to Figure 34-10. Suppose the multiplier is 4 and the economy is currently at point A. An
increase in
government purchases of $10 will increase aggregate demand to $ if there is
no crowding-out. If crowding-
out exists, then aggregate demand will likely to increase to $ .
31.
Refer to Figure 34-10. Suppose the multiplier is 2 and there is no crowding-out, but there is an
accelerator effect. If the economy is currently at point A, then an increase in government
purchases of $10 will likely increase
aggregate demand to point where output is $ .
32.
The potential positive feedback that government spending may have on investment is known as
the _____. The potential negative effect that government spending may have on investment is
known as the _____ effect.
33.
An increase in taxes shifts the aggregate curve to the .
34.
The crowding-out effect occurs because an increase in government spending _____ interest
rates, causing _____ to fall.
35.
A decrease in taxes ____ aggregate demand through larger _____ by households.
36.
A decrease in taxes will shift aggregate demand to the _____, cause consumption to _____, and
cause output to _____. Due to the crowding-out effect, investment will _____.
37.
Permanent tax changes have a effect on aggregate demand compared to temporary tax
changes.
38.
The idea that aggregate demand fluctuates due to irrational waves of pessimism by households
and firms is known
as _____.
39.
To offset increased pessimism by households, the government may _____ government spending
and/or _____ taxes.
40.
The goal of stabilization policy is to stabilize aggregate . As a result, stabilization policy will
also stabilize _____ and _____.
41.
To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____
government purchases.
42.
Suppose households attempt to increase money holdings. To stabilize output and employment, the
Federal Reserve
will .
43.
Suppose a wave of optimism causes firms to increase investment. To stabilize output and
employment, the Federal
Reserve will .
Figure 34-11
44.
Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president
and Congress can
reduce __________ and/or increase _____.
The Influence of Monetary and Fiscal Policy on Aggregate Demand 8461
Figure 34-12
45.
Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To
stabilize output at $1000, the government should _____ purchases by $_____.
8462 The Influence of Monetary and Fiscal Policy on Aggregate Demand
Figure 34-13
46.
Refer to Figure 34-13. The economy is currently at point A. Given the current situation, the
Federal Reserve will _____ bonds, which causes interest rates to _____.
47.
Critics of stabilization policy argue that monetary and fiscal policies affect the economy with .
48.
are changes in fiscal policy that stimulate aggregate demand when the economy goes into
recession without
policymakers having to take any deliberate action.
49.
The is the most important automatic stabilizer.
50.
Unemployment insurance benefits are an example of .
