In an economy, eal GDP is £700 billion. The government decreases its expenditures on goods and services by £100 billion. During the first round, real GDP will __________________.

remain constant at £600 billion
decrease to less than £600 billion
increase to more than £800 billion
decrease to £500 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 interest-sensitive expenditure curve shifts leftward
the money supply curve shifts rightward
the money demand curve shifts leftward

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

extreme economists
extreme monetarists
Marxists
extreme Keynesians

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 monetary policy
contractionary monetary policy
expansionary fiscal policy
contractionary fiscal 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 the _______.

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

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

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 __________________.

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

According to extreme Keynesians, _____________.

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

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

increases; more
decreases; more
increases; less
decreases; 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 _______.

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