Question 1

Fiscal policy is determined by

Accepted Answer

The president and congress and involves changing government spending and taxation

Question 2

The goal of monetary policy and fiscal policy is to

Accepted Answer

offset shifts in aggregate demand and thereby stabilize the economy

Question 3

if expected inflation is constant then when the nominal interest rate increases, the real interest rate

Accepted Answer

increases by the change in the nominal interest rate

Question 4

People choose to hold a larger quantity of money if

Accepted Answer

the interest rate falls, which causes the opportunity cost of holding money to fall

Question 5

If the federal reserve increases the money supply, then initially there is a

Accepted Answer

surplus in the money market, so people will want to buy bonds

Question 6

A situation in which the fed's target interest rate has fallen as far as it can, is sometimes described as a

Accepted Answer

liquidity trap

Question 7

Order of the logic of interest rate effect

Accepted Answer

price level increases, aggregate demand increases (shifting right), interest rate increases, quantity of output decreases

Question 8

The marginal propensity to consume (MPC) is defined as the fraction of

Accepted Answer

extra income that a household consumes rather than saves

Question 9

When income is $10,000, consumption spending is $6,500.For this economy an initial increase of $200 in net exports translates into a(n)

Accepted Answer

$800 increase in aggregate demand in the absence of the crowding-out effect.

Question 10

Assume the Marginal propensity to consume (MPC) is .625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

right by $68 billion

Macro: Ch 21 Redwine

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