Monetary policy that contracts the money supply, will __________ the interest ra
ID: 1125802 • Letter: M
Question
Monetary policy that contracts the money supply, will __________ the interest rate causing the aggregate demand curve to shift __________.
increase, in
decrease, in
increase, out
decrease, out
Which one of the following is NOT one of the reasons behind the downward sloping aggregate demand curve?
exchange rate effect
technological progress effect
wealth effect
interest rate effect
Which of the following events would cause the aggregate supply curve to shift RIGHT?
Florida orange groves suffer a prolonged period of below-freezing temperatures.
Congress raises the minimum wage to $10 per hour.
Increased job opportunities overseas cause many people to leave the country.
A technological improvement raises productivity.
Which of the following events would cause the aggregate demand curve to shift OUT?
A recession overseas causes foreigners to buy fewer U.S. goods.
Households decide to save a larger share of their income.
The federal government increases spending on national defense.
The stock market declines sharply, reducing consumers' wealth.
Explanation / Answer
1) By reducing money supply, interest rates to borrow money increases.
Also it reduces business expansion as loan become expensive, reduces consumer spending as people tend to save money and also makes exports expensive thereby decreasing aggregate demand.
Ans is increase, in
2) AD = C + I + G + NX
Downward slope is due to increasing spending power, increase in demand for exports and lower interest rates i.e. exchange rate effect , wealth effect and interest rate effect.
Ans is technological progress effect
3) AS shifts to right when as productivity increases or price of inputs fall.
Ans is technological improvement raises productivity
4) AD shift out when demand increases
as AD = C + I + G + NX
when the federal government increases spending on national defense, G increases and shift AD out
Ans is The federal government increases spending on national defense
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