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9 Cards in this Set
- Front
- Back
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T/F: Other things the same, an increase in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes interest rate rise
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False
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T/F: Government expenditures on capital goods such as roads could increase aggregate supply. Such effects on aggregate supply are likely to matter more in the short run than in the long run
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True
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Shifts in aggregate demand affect the price level in
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Both short and long run.
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Changes in interest rate shift aggregate demand…
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If they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.
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Liquidity preference framework focuses on the ______ run, so it assumes the ___________ adjusts to bring money market to equilibrium
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Short, Interest Rate
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If interest rate rises, people want to hold ____ money, which does what to demand curve?
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Less, Move to the left along money demand curve.
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If output increases, people want to hold _____ money, which does what to demand curve?
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More, Shift of demand curve.
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To decrease the interest rate, the Fed could
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Buy bonds, the fall in the interest rate would increase investment spending.
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What effect(s) results from the change in the interest rate created by an increase in government spending?
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Crowding out, but not investment accelerator.
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