Final Review Day 10 CW Part 2

Which of the following tends to make aggregate demand shift right farther than the amount government expenditures increase?

• the crowding-out effect

• the multiplier effect

• the wealth effect

• the interest-rate effect

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates

• the multiplier effect

• the crowding-out effect.

• the Fisher effect.

• None of the above is correct.

An increase in government spending initially and primarily shifts

• aggregate demand right.

• aggregate demand left.

• aggregate supply right.

• neither aggregate demand nor aggregate supply.

During expansions, automatic stabilizers make government expenditures

• and taxes fall.

• and taxes rise.

• rise, and taxes fall.

• fall and taxes rise.

An increase in the MPC

• increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

• increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

• decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

• decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

According to liquidity preference theory, the money supply curve would shift right

• if the money demand curve shifted right.

• if the Federal Reserve chose to increase money supply.

• if the interest rate increased.

• All of the above are correct.

Refer to the diagram provided. At an interest rate of 4 percent there is excess:

• money demand equal to the distance between a and b.

• money demand equal to the distance between b and c.

• money supply equal to the distance between a and b.

• money supply equal to the distance between c and b.

If there is excess money supply, people will:

• deposit more into interest-bearing accounts, and the interest rate will fall.

• deposit more into interest-bearing accounts, and the interest rate will rise.

• withdraw money from interest-bearing accounts, and the interest rate will fall.

• withdraw money from interest-bearing accounts, and the interest rate will rise.

In the short run an increase in government expenditures:

• raises the price level, but not real GDP.

• raises real GDP, but not the price level.

• raises real GDP and the price level.

• raises neither real GDP nor the price level.

Liquidity refers to:

• the relation between the price and interest rate of an asset.

• the risk of an asset relative to its selling price.

• the ease with which an asset is converted into a medium of exchange.

• the sensitivity of investment spending to changes in the interest rate.