Question 1

Other things the same,an increase in taxes shifts aggregate demand to the left.In the short run this makes output fall which makes the interest rate rise.

Accepted Answer

An increase in taxes shifts aggregate demand to the left, which in the short run can lead to a decrease in output and a decrease in the demand for money, potentially leading to a lower interest rate, not a rise.

Question 2

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

Unemployment insurance and welfare programs can help to offset fluctuations in the economy by providing a safety net for those in need during times of economic downturn. As people lose their jobs or experience reductions in income, they may become eligible for these programs, which can help to boost their purchasing power and maintain their overall level of consumption. This can help to stabilize the economy by preventing a sharp decline in aggregate demand and consequent job losses.

Question 3

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

Accepted Answer

Both the multiplier effect and the investment accelerator increase the effects of initial government expenditures on aggregate demand, causing the curve to shift further than it would without these effects.

Question 4

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

This is true. President Obama signed the American Recovery and Reinvestment Act (ARRA) in 2009, which included significant government spending aimed at boosting the economy during the Great Recession.

Question 5

If the MPC is 4/5,the multiplier is 5/4.

Accepted Answer

The multiplier is equal to 1/MPC, so if the MPC is 4/5, the multiplier would be 1/(4/5) = 5/4. Therefore, the statement is false.

Question 6

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The answer of What is the difference between monetary policy...

Question 7

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

Accepted Answer

This statement is not accurate. In fact, most economists have a strong theoretical understanding of how monetary and fiscal policies work to stabilize the economy. However, there can be various debates and disagreements among economists over the effectiveness and timing of these policies in specific situations.

Question 8

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

The statement accurately reflects the time lags associated with monetary and fiscal policies.

Question 9

If the spending multiplier is 8,then the marginal propensity to consume must be 7/8.

Accepted Answer

The spending multiplier is equal to 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, if the spending multiplier is 8, we can solve for MPC using the equation 8 = 1/(1-MPC), which gives us an MPC of 7/8.

Question 10

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

The Employment Act of 1946 established the government's responsibility to promote maximum employment, production, and purchasing power. One way to achieve this was through fiscal policy, which involves adjusting government spending and taxation to stabilize aggregate demand in response to changes in the private economy. Therefore, the implication of the Employment Act is that the government should respond to changes in the private economy to stabilize aggregate demand.

Question 11

The multiplier is computed as MPC / (1 - MPC).

Accepted Answer

The answer of The multiplier is computed as MPC /...

Question 12

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

Permanent tax cuts provide more certainty to consumers and therefore have a larger impact on their consumption spending behavior compared to temporary tax cuts which may not incentivize long-term behavior changes.

Question 13

Depending on the size of the multiplier and crowding-out effects,the rightward shift in aggregate demand from a tax cut could be larger or smaller than the tax cut.

Accepted Answer

This is true because if the multiplier effect (the increase in consumption, investment, and government spending that results from the tax cut) is larger than the crowding-out effect (the decrease in private spending that results from increased government borrowing to finance the tax cut), then the aggregate demand shift will be larger than the initial tax cut. Conversely, if the crowding-out effect is larger than the multiplier effect, then the aggregate demand shift will be smaller than the initial tax cut.

Question 14

Government expenditures on capital goods such as roads could increase aggregate supply.Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

Government expenditures on capital goods like roads can increase aggregate supply by improving infrastructure, which enhances productivity. These effects are more significant in the long run as the benefits of improved infrastructure accumulate over time, rather than having an immediate impact in the short run.

Question 15

During recessions,unemployment insurance payments tend to rise.

Accepted Answer

During recessions, there is an increase in job losses and layoffs, leading to more people claiming unemployment benefits. Therefore, unemployment insurance payments tend to rise during recessions.

Question 16

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

The answer of The main criticism of those who doubt...

Question 17

In principle,the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

Increasing the money supply or government spending can be tools used by the government to try to stimulate economic growth and offset pessimism. However, there may be limitations to how effective these actions can be depending on the specific circumstances of the economy.

Question 18

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

During a recession, when unemployment rises, governments may increase unemployment benefits to provide support for those who have lost their jobs. This increase in benefits can lead to a rise in consumer spending, which in turn can increase demand for goods and services. This can help to stimulate economic growth and reduce the severity of the recession.

Question 19

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

Supply-side economics focuses on how changes in tax rates and regulations affect economic growth, not changes in the money supply which is within the realm of monetary policy.

Question 20

During recessions,the government tends to run a budget deficit.

Accepted Answer

During recessions, government revenues typically decrease due to lower tax collections and increased demand for social services such as unemployment benefits. This leads to a reduction in government income, making it difficult to finance all necessary expenditures. To bridge this gap, governments tend to increase their spending, leading to a budget deficit.

Quiz 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand