Questions from General Economics

Q: Suppose government spending increases. Would the effect on aggregate demand be

Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in responseor if the Fed were committed to maintaining a fix...

Q: In which of the following circumstances is expansionary fiscal policy more likely

In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain. a. When the investment accelerator is large or when it is smal...

Q: A person who consumes wine and cheese gets a raise, so

A person who consumes wine and cheese gets a raise, so her income increases from $3,000 to $4,000. Show what happens if both wine and cheese are normalgoods. Now show what happens if cheese is an infe...

Q: Explain how each of the following developments would affect the supply of

Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. a. The Fed’s bond traders buy bonds...

Q: The Federal Reserve expands the money supply by 5 percent.

The Federal Reserve expands the money supply by 5 percent. a. Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate. b. Use the model of aggreg...

Q: Suppose a computer virus disables the nation’s automatic teller machines, making

Suppose a computer virus disables the nation’s automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the dema...

Q: Suppose that survey measures of consumer confidence indicate a wave of pessimism

Suppose that survey measures of consumer confidence indicate a wave of pessimism is sweeping the country. If policymakers do nothing, what will happen to aggregate demand? What should the Fed do if it...

Q: Give an example of a government policy that acts as an automatic

Give an example of a government policy that acts as an automatic stabilizer. Explain why the policy has this effect.

Q: What is the theory of liquidity preference? How does it help

What is the theory of liquidity preference? How does it help explain the downward slope of the aggregatedemand curve?

Q: Suppose that the government reduces spending on highway construction by $10

Suppose that the government reduces spending on highway construction by $10 billion. Which way does the aggregate-demand curve shift? Explain why the shift might be larger than $10 billion. Explain wh...