All about interest rate
The initial effect of an increase in the money supply is to _______.
a. decrease the interest rate
b. increase the interest rate
c. decrease the price level
d. increase the price level
a. decrease the interest rate
Which of the following Fed actions would decrease the money supply?
a. Lowering the reserve requirement
b. Raising the reserve requirement
c. Decreasing the discount rate
d. Buying bonds
b. Raising the reserve requirement
The initial impact of an increase in government spending is to shift _______.
shift AD to the right
Suppose the central bank reduces interest rates at the same time the economy faces a negative supply shock. Using the AD–AS model, analyze how these events will affect the final equilibrium levels of output and the price level.
price level rises, output will be ambiguous.
If money demand shifted to the left and the Federal Reserve desired to return the interest rate to its original value, it could BUY/SELL bonds.
sell
Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by.....
The supply and demand for money
For the United States, the most important source of the downward slope of the aggregate-demand curve is...
the interest-rate effect
In the market for real output, the initial effect of an increase in the money supply is to...
shift aggregate demand to the right
If the marginal propensity to consume (MPC) is 0.80, the value of the multiplier is _______.
5
Suppose a pandemic causes a reduction in consumer spending. If the Federal Reserve chooses to engage in activist stabilization policy, it should _______.
increase the money supply and decrease interest rates.
When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate will have what effect on the quantity of money demanded?
decrease the quantity of money demanded
Changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into a recession are called _______.
automatic stabilizers
When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of _______.
crowding out effect
An increase in the marginal propensity to consume (MPC) does what to the multiplier?
Raises it
Suppose that irrational exuberance has generated an increase in investment spending so that the current level of output exceeds the long-run natural level. If policymakers choose to engage in activist stabilization policy, they should _______.
increase taxes// decrease government spending
When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level _______.
a. shifts money demand to the right and increases the interest rate
b. shifts money demand to the left and increases the interest rate
c. shifts money demand to the right and decreases the interest rate
a. shifts money demand to the right and increases the interest rate
Take the following information as given for small, imaginary economy:
When income is $10,000, consumption spending is $6,500.
When income is $11,000, consumption spending is $7,100.
What is the multiplier for this economy?
2.5
When an increase in net exports increases the income of domestic consumers, and those consumers spend some of that increase in income on additional consumer goods, we have seen a demonstration of _______.
the multiplier effect
What type of change in taxes has a greater effect on aggregate demand?
Temporary or Permanent?
Permanent
Which of the following statements about stabilization policy is true?
a. In the short run, a decision by the Fed to increase the targeted interest rate is essentially the same as a decision to increase the money supply.
b. Congress has veto power over the monetary policy decisions of the Fed.
c. Long lags enhance the ability of policymakers to "fine-tune" the economy.
d. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy.
e. All of the answer choices are correct.
d. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy.
The long-run effect of an increase in the money supply is to _______.
a. increase the interest rate
b. increase the price level
c. decrease the price level
d. decrease the interest rate
b. increase the price level
Which of the following illustrates how the investment accelerator works?
a. An increase in government expenditures increases aggregate spending so that Starshine Inc. finds it profitable to update its car-wash equipment.
b. An increase in government expenditures decreases the interest rate so that Starshine Inc. finds it profitable to update its car-wash equipment.
c. An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Starshine Inc. rises.
d. An increase in government expenditures increases the interest rate so that the Starshine Inc. decides to open up new car wash in additional locations.
a. An increase in government expenditures increases aggregate spending so that Starshine Inc. finds it profitable to update its car-wash equipment
When an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of _______.
the investment accelerator
Suppose the government increases its purchases by $25 billion. If the multiplier effect exceeds the crowding-out effect, then _______.
a. The aggregate-demand curve shifts to the right by more than $25 billion
b. the aggregate-supply curve shifts to the left by more than $25 billion
c. the aggregate-demand curve shifts to the left by more than $25 billion
d. the aggregate-supply curve shifts to the right by more than $25 billion
a. The aggregate-demand curve shifts to the right by more than $25 billion
Which of the following best describes how an expansionary monetary policy shifts aggregate demand?
a. The money supply shifts right, the interest rate falls, investment increases, and aggregate demand shifts right.
b. The money supply shifts right, prices fall, spending increases, and aggregate demand shifts right.
c. The money supply shifts right, the interest rate rises, investment decreases, and aggregate demand shifts left.
d. The money supply shifts right, prices rise, spending falls, and aggregate demand shifts left.
a. The money supply shifts right, the interest rate falls, investment increases, and aggregate demand shifts right.