Influence of Monetary Policy on Aggregate Demand

Influence of Monetary Policy on Aggregate Demand

Short-Answer Questions

ARSC 1432 Macroeconomics Co-Seminar

SPRING 2009

1. If the Federal Reserve were to engage in activist stabilization policy, in which direction should

they move the money supply in response to the following events?

a. A wave of optimism boosts business investment and household consumption.

Decrease the money supply.

b. To balance the budget, the federal government raises taxes and reduces expenditures.

Increase

c. Foreigners experience a reduction in their taste for U.S. produced Ford automobiles.

Increase

d. The stock market falls.

Increase

2. If the Federal Reserve were to engage in activist stabilization policy, in which direction should

they move interest rates in response to the following events?

a. A wave of optimism boosts business investment and household consumption.

Increase interest rates

b. To balance the budget, the federal government raises taxes and reduces expenditures.

Decrease

c. Foreigners experience a reduction in their taste for U.S. produced Ford automobiles.

Decrease

d. The stock market falls.

Decrease