The government fears that a recession is upcoming and decides to use expansionary fiscal policy to stimulate aggregate demand. If government expenditures increase by $50 billion, then in the first round _______________.

aggregate planned expenditure starts to decrease
the supply of money starts to increase
real GDP starts to increase
real GDP increases by $50 billion

The government fears that a recession is upcoming and increases its expenditures by $100 billion. In the first round, real GDP increases from $400 billion to $600 billion. If partial crowding out occurs, real GDP at the end of the second round will be ________________.

$400 billion
between $400 billion and $600 billion
greater than $600 billion
$600 billion

Contractionary fiscal policy will result in a _______ interest rate, _______ in the exchange rate, and _______ in net exports.

higher; an increase; a decrease
higher; a decrease; an increase
lower; a decrease; an increase
lower; an increase; a decrease

The Bank of Canada undertakes expansionary monetary policy. The first round effect is __________________, ___________ in interest-sensitive expenditure, and ___________ in real GDP.

an increase in the interest rate; a decrease; a decrease
a decrease in the interest rate; an increase; an increase
a decrease in the demand for money; an increase; an increase
an increase in the demand for money; a decrease; a decrease

The Bank of Canada undertakes expansionary monetary policy. In the second round, there will be a _______ the money demand curve and a _______ the interest-sensitive curve.

movement downward along; leftward shift of
movement upward along; rightward shift of
rightward shift of; movement upward along
rightward shift of; movement downward along

The __________ responsive expenditure is to _________, the _________ crowding out occurs and the _________ effective is fiscal policy.

less; real GDP; less; more
less; the interest rate; less; more
more; the money supply; more; less
more; the interest rate; more; more

With expansionary monetary policy, the ______ responsive the money demand with respect to the interest rate, the _______ is the change in the interest rate and the _______ effective is the fiscal policy.

less; greater; more
less; smaller; more
more; smaller; more
more; greater; less

The figure shows the outcome of a contractionary fiscal policy. If potential GDP is $700 billion, then the economy ____________.

is in a long-run equilibrium
will experience a decrease in potential GDP
has an inflationary gap
is in a short-run equilibrium

The figure shows the first round effects of a contractionary fiscal policy. In the second round, real GDP ______________$625 billion.

might be less than or equal to
is equal to
decreases below
increases above

The proposition at in the long run a change in the quantity of money changes the price level and leaves all real variables unchanged is the ___________ neutrality proposition.

potential GDP
long-run
real variables
full-employment

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