Question

1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by...

1) If the stock market crashes, then

aggregate demand increases, which the Fed could offset by increasing the money supply.

aggregate demand increases, which the Fed could offset by decreasing the money supply.

aggregate demand decreases, which the Fed could offset by increasing the money supply.

aggregate demand decreases, which the Fed could offset by decreasing the money supply.

2) In order to avoid entering a recession, the government of Batavia spent $300 billion improving infrastructure around the country. Assuming that the marginal propensity to consume is ½ and without considering any crowding out effects, how much would aggregate demand increase?

$150 billion

$250 billion

$600 billion

$900 billion

3) The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates Question 13 options:

the multiplier effect. the crowding-out effect.

the Fisher effect.

the wealth effect.

4) If businesses become pessimistic about the economy, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

increasing the money supply, which raises interest rates.

increasing the money supply, which lowers interest rates.

decreasing the money supply, which raises interest rates.

decreasing the money supply, which lowers interest rates.

5) Opponents of using policy to stabilize the economy generally believe that

neither fiscal nor monetary policy have much impact on aggregate demand

. attempts to stabilize the economy decrease the magnitude of economic fluctuations

. unemployment and inflation are not cause for much concern.

economic conditions can easily change between the start of policy action and when it takes effect.

Homework Answers

Answer #1

1) aggregate demand decreases, which the Fed could offset by increasing the money supply. A stock market crash would drive demand down due to pessimism. The fed can increase mone supply to drive output and demand up.

2) $600 billion

MPC = 0.5

Multiplier = 1/(1-MPC) = 2

Therefore, increase in AD = 2 * (increase in G) = $600 billion

3) Wealth effect: The wealth effect is a behavioral economic theory suggesting that people spend more as the value of their assets rise.

4) increasing the money supply, which lowers interest rates. Raising money supply would spur output and demand. Lowering interest rates would increase investments and overall real GDP will rise.

5) economic conditions can easily change between the start of policy action and when it takes effect. A lot of times there is a lag before the policy outcomes are observed.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Crowding out refers to a situation in which _______. a an increase in the Fed Funds...
Crowding out refers to a situation in which _______. a an increase in the Fed Funds rate leads to lower financial frictions, thus stimulating aggregate demand and with it the economy. b an increase in government spending leads to additional consumption, thereby amplifying the total aggregate demand effect. c an increase in government spending leads to higher inflation and therefore higher interest rates, which in turn reduces consumption and investment expenditures. d increased competition across firms leads to more crowded...
If the MPC in an economy is .8, government could shift the aggregate demand curve rightward...
If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by: decreasing taxes by $25 billion. increasing government spending by $25 billion. increasing government spending by $80 billion. decreasing taxes by $100 billion.
QUESTION 8 Monetary policy impacts GDP mainly through its effect on… a. government spending. b. investment....
QUESTION 8 Monetary policy impacts GDP mainly through its effect on… a. government spending. b. investment. c. taxes. d. consumption. e. net exports. QUESTION 10 Which of the following best describes the sequence of events in the conduct of contractionary monetary policy using open market operations (in an economy with low inflation and a stable banking system)? a. The Fed lowers the interest rate, which leads to an increase in intended investment spending and an increase in the supply of...
17. The government implements monetary policy and fiscal policy in order to: a. offset the shifts...
17. The government implements monetary policy and fiscal policy in order to: a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. enhance the shifts in aggregate demand and thereby increase economic growth 20. Which of the following is a way the Fed can change the money supply? a. changing how much...
Q - 1 Which of the following statements is correct about real GDP? a- Real GDP...
Q - 1 Which of the following statements is correct about real GDP? a- Real GDP is not affected by the amount of final goods and services that are newly produced. b- Real GDP is affected by the price levels used to calculate real GDP. c- Changes in real GDP is affected by the price levels used to calculate real GDP. d- Nominal GDP is not affected by the amount of final goods and services that are newly produced Q...
1- To fight inflation, the Fed should Select one: a. buy securities, which would decrease interest...
1- To fight inflation, the Fed should Select one: a. buy securities, which would decrease interest rates, increase aggregate demand, and therefore decrease the price level. b. buy securities, which would increase interest rates, decrease aggregate demand, and therefore decrease the price level. c. sell securities, which would decrease interest rates, increase aggregate demand, and therefore decrease the price level. d. sell securities, which would increase interest rates, decrease aggregate demand, and therefore decrease the price level. 2- An argument...
1. The aggregate demand curve shifts to the right when the Fed: a. increases its target...
1. The aggregate demand curve shifts to the right when the Fed: a. increases its target inflation rate, reflected by a downward shift in the Fed’s policy reaction function. b. decreases its target inflation rate, reflected by an upward shift in the Fed’s policy reaction function. c. increases real interest rates in response to inflation, but does not change its target inflation rate or the Fed’s policy reaction function. d. decreases real interest rates in response to inflation, but does...
Suppose there is an event in the economy that lowers consumer confidence which led people to...
Suppose there is an event in the economy that lowers consumer confidence which led people to save more. The Fed would like to stabilize demand in the economy. What should the Fed do? increase the money supply to raise the interest rate increase the money supply to lower the interest rate decrease the money supply to raise the interest rate decrease the money supply to lower the interest rate  
Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds, and the money...
Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds, and the money multiplier is 6. Which of the following impacts are most likely to result? a. The money supply shifts inward, and the equilibrium interest rate rises in the money market. b. The money supply shifts outward, and the equilibrium interest rate falls in the money market. c. Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the...
Fed is open to changing bond policy Fed policymakers signaled for the first time that they...
Fed is open to changing bond policy Fed policymakers signaled for the first time that they could increase or decrease stimulation of the economy in the​ future, but not now. ​Source: Los Angeles Times​, May​ 1, 2013 What are the ripple effects and time lags that the Fed must consider in deciding when to increase or decrease stimulation of the​ economy? Choose the statement that is correct. A. When the Fed raises the federal funds​ rate, the quantity of money...