Chapter 21 - The Influence of Monetary and Fiscal Policy on Aggregate Demand

FED

________ alters the money supply primarily by changing the quantity of reserves in the banking system through the purchase and sale of government bonds in open- market operations.

aggregate demand

The use of policy instruments to stabilize ________ and, as a result, production and employment.

Fiscal policy

________- the setting of the level of government spending and taxation by government policymakers.

personal income

When the government cuts ________ taxes, it increases households take- home pay.

Automatic stabilizer

________- changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action.

quantity of money

The ________ demanded exactly balances the ________ supplied.

Multiplier effect

________- the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.

Crowding-out effect

the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduce.

fiscal policy

The government can adjust its monetary and ________ in response to those waves of optimism and pessimism.

aggregate demand

It shifts the ________ curve indirectly by influencing the spreading decisions of firms and households.