In the economy shown in the figure, the government decreases its expenditures on goods and services by $100 billion. During the first round, real GDP will __________________.

decrease to less than $600 billion
decrease to $300 billion
decrease to $500 billion
remain constant at $600 billion

In an economy, real GDP is $600 billion. The government decreases its expenditures on goods and services by $100 billion. During the second round, all of the following will occur except _______________.

the interest rate falls
the money demand curve shifts leftward
the money supply curve shifts rightward
the interest-sensitive curve shifts leftward

The view that a change in government expenditures on goods and services has no effect on aggregate demand is held by ______________.

Marxists
extreme economists
extreme Keynesians
extreme monetarists

If an economy experiences a decrease in real GDP, a rise in interest rates, and a decrease in interest-sensitive expenditure, then most likely a ___________ has been implemented.

expansionary fiscal policy
expansionary monetary policy
contractionary fiscal policy
contractionary monetary policy

In Omega, a change in the interest rate of 1 percentage point results in a $2 billion change in the quantity of real money demanded. In Phi, a change in the interest rate of 1 percentage point results in a $500 million change in the quantity of real money demanded. All other aspects of their economies are identical. In _______, an increase in government expenditures has a greater effect on real GDP because _______.

Phi; crowding out effect is larger
Phi; crowding out effect is smaller
Omega; crowding in effect is smaller
Omega; crowding out effect is smaller

In Epsilon, a change in the interest rate of 1 percentage point results in a $1 billion change in interest-sensitive expenditure. In Gamma, a change in the interest rate of 0.5 percentage points results in a $1 billion change in interest-sensitive expenditure. All other aspects of their economies are identical. _______ has more effective monetary policy than _______, and _______ has more effective fiscal policy than _______.

Epsilon; Gamma; Epsilon; Gamma
Gamma; Epsilon; Gamma; Epsilon
Epsilon; Gamma; Gamma; Epsilon
Gamma; Epsilon; Epsilon; Gamma

Suppose that the economy is in a recession and the government wants to increase aggregate demand, net exports, and investment. The best policy option to follow is __________________.

an increase the money supply
an increase in government expenditures on goods and services
an increase in transfer payments
to eliminate the GST

According to extreme Keynesians, _____________.

the interest-sensitive expenditure curve is horizontal
the interest-sensitive expenditure curve is vertical
the real money demand curve is upward sloping
the real money demand curve is vertical

The economy is overheating and the Bank of Canada implements a contractionary monetary policy. The price level _______, and as a result real GDP decreases by ______ than if the price level had not changed.

decreases; more
decreases; less
increases; more
increases; less

The economy is in a recession. An expansionary fiscal policy will _______ the exchange rate and exports will _______. An expansionary monetary policy will _______ the exchange rate and exports will _______.

lower; increase; raise; decrease
raise; decrease; lower; increase
lower; increase; lower; increase
raise; decrease; raise; decrease

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