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An increase in the interest rate increases the quantity demanded of money because it increases the rate of return on money.

When money demand is drawn on a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level shifts money demand to the right.

Keynes's theory of liquidity preference suggests that the interest rate is determined by the supply and demand for money.

The interest-rate effect suggests that the aggregate demand curve slopes downward because an increase in the price level shifts money demand to the right, increases the interest rate, and reduces investment.

An increase in the money supply shifts the money supply curve to the right, increases the interest rate, decreases investment, and shifts the aggregate demand curve to the left.

Because of the multiplier effect, an increase in government spending of €40 billion will shift the aggregate demand curve to the right by more than €40 billion (assuming there is no crowding out).

If the MPC (marginal propensity to consume) is 0.80, then the value of the multiplier is 8.

Crowding out occurs when an increase in government spending increases incomes, shifts money demand to the right, raises the interest rate, and reduces private investment.

Suppose the government increases its expenditure by €10 billion. If the crowding-out effect exceeds the multiplier effect, then the aggregate demand curve shifts to the right by more than €10 billion.

Suppose investors and consumers become pessimistic about the future and cut back on expenditures. If fiscal policymakers engage in activist stabilization policy, the policy response should be to decrease government spending and increase taxes.

Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policies.

In the short run, the interest rate is determined by the loanable funds market, while in the long run, the interest rate is determined by money demand and money supply.

Unemployment benefits are an example of an automatic stabilizer because when incomes fall, unemployment benefits rise.

Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by

When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate

When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level shifts money demand to the

For the Eurozone countries, the most important source of the downward slope of the aggregate demand curve is probably

In the market for real output, the initial effect of an increase in the money supply is to shift the aggregate

The initial effect of an increase in the money supply is to

The long-run effect of an increase in the money supply is to

Suppose a wave of investor and consumer pessimism in the USA causes a reduction in spending. If the US Federal Reserve (which has a broader remit than the Bank of England which is charged only with controlling inflation) chooses to engage in activist stabilization policy, it should

The initial impact of an increase in government spending is to shift aggregate

If the marginal propensity to consume MPC is 0.75, the value of the multiplier is

An increase in the marginal propensity to consume (MPC)

Suppose a wave of investor and consumer optimism has increased spending so that the current level of output exceeds the long-run natural rate. If policy makers choose to engage in activist stabilization policy, they should decrease

When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of

Which of the following statements regarding taxes is correct?

Suppose the government increases its purchases by €16 billion. If the multiplier effect exceeds the crowding-out effect, then the aggregate

When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of

Which of the following is an automatic stabilizer?

Which of the following statements about stabilization policy is not true?

Which of the following best describes how an increase in the money supply shifts the aggregate demand curve?