Explain the effect, if any, that each of the following occurrences should have on the

aggregate demand curve.

a.The Fed lowers the discount rate.

b.The price level decreases.

c.The federal government increases the federal income tax rates in an effort to reduce the federal deficit.

d.Pessimistic firms decrease investment spending.

e.The federal government increases purchases to stimulate the economy.

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Collen VonLv2

15 Mar 2019

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Hi,

I would like to ask a question in Chapter 27 - Aggregate Demand in the Goods and Money Markets., Principles of Economics, Case, Fair, Oster, 10th edition

14. Explain the effect, if any, that each of the following occurrences should have on the aggregate demand curve.

- The Fed lowers the discount rate.

- The price level decreases.

- The federal government increases federal income tax rates in an effort to reduce the federal deficit.

- Pessimistic firms decrease investment spending.

- The inflation rate falls by 3 percent.

- The federal government increases purchases to stimulate the economy.

Thank you

burgundymarten705

1) Suppose the federal government reduces its spending to balance its budget. If the Federal Reserve wants to completely offset the effects of this policy in terms of economic growth, unemployment and inflation, what should the Fed do?

A) purchase bonds or raise the required reserve ratio

B) sell bonds or raise the required reserve ratio

C) purchase bonds or lower the required reserve ratio

D) sell bonds or lower the required reserve ratio

E) None of the above

2) Geopolitical uncertainty drives oil prices higher the results in an aggregate supply shock. In response, the Federal Reserve increases its target interest rate. In the short run, relative to short-run equilibrium situation if the Federal Reserve undertakes no action, output (RGDP) _______ and the price level _________.

A) increases; increases

B) increases; decreases

C) decreases; increases

D) decreases; decreases

E) unchanged; decreases

3) If interest rates and investment rise, which of the following could explain these changes?

A) The government instituted an investment tax credit

B) The government went from surplus to deficit

C) The government reduced the tax rate on savings

D) The Federal Reserve buys bonds

E) None of the above is correct