TRUE OR FALSE

1. If MPC = 0.5 and there is no crowding out, an increase in G by $50 would increase income by $100.

2. In the 1980s the increased unemployment to reduce inflation. This eventually would cause a decrease in the price level lowering money demand, raising the interest rate which increases investment which increases the aggregate quantity of goods & services demanded.

3. If the Fed increases the money supply it causes the interest rate to fall, which stimulates investment and shifts the aggregate demand curve rightward.

4. An increase in G will increases AD by the multiplier, but the resulting higher Y will increased money demand and r lowering AD. This is called crowding out.

5. A bigger MPC means changes in Y cause bigger changes in C, which in turn cause bigger changes in Y.

6. The multiplier is the additional shifts in AD that result when an increase in G increases income and thereby increases consumer spending

7. The Fed can raise r by reducing the money supply. An increase in r increases the quantity of goods and services demanded