Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 6, Problem 11DQ
To determine
Great recession.
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Which one of the following economic policies would not be effective in combating a recession?
O a. Increase wages to stimulate aggregate demand and depress the rate of unemployment.
O b. Expand the money supply and increase fiscal spending to stimulate aggregate demand.
O c. Expand the money supply to stimulate aggregate demand and reduce the rate of unemployment.
O d. Decrease wages to increase the quantity of labor demanded and to reduce unemployment.
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
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Question 31
When an economy is overheated, what "automatic stabilizer" might cure things?
O a. nothing changes with "G," it's only the LRAS that moves to the right.
O b. net G increases (spending on benefits going up and tax revenues going down), pushing the aggregate demand curve upward also, or to the right.
O c. net G goes down (spending on benefits going down and and tax revenues go up), pushing down (or to the left) the aggregate demand curve.
O d. no, economies cannot be "overheated"--that is just a classical point of view. Modern economists understand growth is unlimited.
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- 44arrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?arrow_forward9arrow_forward
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