Question 1

A goal of monetary policy and fiscal policy is to&#10;A)offset the shifts in aggregate demand and thereby eliminate unemployment.&#10;B)offset shifts in aggregate demand and thereby stabilize the economy.&#10;C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.&#10;D)enhance the shifts in aggregate demand and thereby increase economic growth

Accepted Answer

The goal of both monetary and fiscal policy is to offset shifts in aggregate demand and stabilize the economy. This includes reducing unemployment during recessions and controlling inflation during booms. The other options do not accurately reflect the goals of these policies.

Question 2

Shifts in aggregate demand affect the price level in&#10;A)the short run but not in the long run.&#10;B)the long run but not in the short run.&#10;C)both the short and long run.&#10;D)neither the short nor long run.

Accepted Answer

Shifts in aggregate demand affect the price level in both the short and long run. In the short run, an increase in aggregate demand leads to a higher price level as firms increase their output and charge higher prices. In the long run, the higher price level leads to firms increasing their production and potential output, which reduces the upward pressure on prices, so the price level returns to its original level. In both the short and long run, a decrease in aggregate demand leads to a lower price level.

Question 3

Shifts in the aggregate-demand curve can cause fluctuations in&#10;A)neither the level of output nor the level of prices.&#10;B)the level of output,but not in the level of prices.&#10;C)the level of prices,but not in the level of output.&#10;D)the level of output and in the level of prices.

Accepted Answer

Shifts in the aggregate-demand curve can cause fluctuations in both the level of output and in the level of prices. When aggregate demand increases, both output and prices increase, and when aggregate demand decreases, both output and prices decrease. This is because higher aggregate demand means that firms need to produce more goods and services and hire more workers, which leads to an increase in output, but also an increase in prices due to higher demand for resources and higher production costs. Conversely, lower aggregate demand means that firms produce less and lay off workers, leading to lower output and lower prices.

Question 4

Fiscal policy affects the economy&#10;A)only in the short run.&#10;B)only in the long run.&#10;C)in both the short and long run.&#10;D)in neither the short nor the long run.

Accepted Answer

Fiscal policy can affect the economy in both the short and long run. In the short run, changes in taxation and government spending can influence aggregate demand, which can lead to changes in output, employment, and price levels. In the long run, fiscal policy can also affect the economy by impacting the supply side through investment in infrastructure, education, and research and development, which can increase productivity, potential output, and economic growth.

Question 5

The Federal Open Market Committee is &#8203;&#10;A)&#8203;the group at the Federal Reserve that sets monetary policy.&#10;B)&#8203;in charge of tax collection.&#10;C)&#8203;the group that sets the amount of government spending.&#10;D)&#8203;the group that reviews income assistance programs.

Accepted Answer

The Federal Open Market Committee (FOMC) is the group at the Federal Reserve that sets monetary policy, including decisions on interest rates and the supply of money in the economy. It is made up of members of the Board of Governors of the Federal Reserve and Federal Reserve Bank presidents.

Deck 34: 0: Sec 340 Mc the Influences of Monetary and Fiscal Policy on Aggregate Demand