Question 1

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

Accepted Answer

While automatic stabilizers such as unemployment insurance and progressive taxation can help mitigate the impact of economic downturns, they are not strong enough to completely prevent recessions. Other factors such as geopolitical events and shifts in consumer and business confidence can also play a significant role in economic fluctuations.

Question 2

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 incorrect. The majority of economists do have a theoretical understanding of how monetary and fiscal policies can be used to stabilize the economy, although there may be differing opinions on their effectiveness in certain circumstances.

Question 3

​Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

Accepted Answer

Requiring a balanced budget would limit the government's ability to use deficit spending to stimulate the economy during recessions, potentially exacerbating the business cycle.

Question 4

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

The answer of A decrease in the domestic _____ causes...

Question 5

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

Accepted Answer

The IGM poll showed that most economists believe the stimulative effects of the American Recovery and Reinvestment Act (ARRA) outweighed the crowding out effects, indicating a general consensus that the stimulus had a positive impact on the economy.

Question 6

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Accepted Answer

A balanced budget rule requires the government to spend only as much as it earns in revenue, so during a recession, when revenues typically fall, the government would need to raise taxes or cut spending to maintain a balanced budget.

Question 7

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

Accepted Answer

This statement is true. In 2009, President Obama signed into law the American Recovery and Reinvestment Act, which included approximately $800 billion in government spending to stimulate the economy during the Great Recession.

Question 8

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 9

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

Accepted Answer

The answer of Changes in aggregate demand can cause fluctuations...

Question 10

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

Accepted Answer

The IGM poll conducted in February 2019 found that 80% of surveyed economists agreed that the benefits of the American Recovery and Reinvestment Act (ARRA) exceeded the costs, while only 5% disagreed.

Question 11

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

Accepted Answer

During recessions, government revenues tend to decrease while government spending on programs such as unemployment benefits and stimulus packages tends to increase, resulting in a budget deficit.

Question 12

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

Accepted Answer

The answer of The theory of _____ states that the...

Question 13

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

Accepted Answer

The answer of According to the Theory of Liquidity Preference,...

Question 14

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

Accepted Answer

The answer of The Federal Reserve sets _____ policy, while...

Question 15

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Accepted Answer

The answer of The wealth-effect notes that a _____ price...

Question 16

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 was enacted to promote maximum employment, production, and purchasing power. It also created the Council of Economic Advisers and obligated the government to promote economic stability by responding to changes in the private economy to stabilize aggregate demand.

Question 17

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

Accepted Answer

During a recession, more people are unemployed and therefore receiving unemployment benefits. This increases their disposable income and can lead to higher consumption, which in turn increases aggregate demand.

Question 18

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

Accepted Answer

The answer of The _____ effect states that a lower...

Question 19

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 20

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Accepted Answer

The answer of Policymakers use _____ policy and _____ policy...

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

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

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.

Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

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

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.

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

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

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

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

The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.

An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.

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

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.​

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.

​Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

​According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

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

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Changes in aggregate demand can cause fluctuations in _____ and _____ in the short run, and only ____ in the long run.

​According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.​

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

The theory of _____ states that the _____ adjusts to bring money supply and money demand into balance.

According to the Theory of Liquidity Preference, a fall in the _____ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _____.

The Federal Reserve sets _____ policy, while the president and Congress set _____ policy. These two policies influence aggregate _____.

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

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

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

The _____ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _____ falls causing investment spending to rise and increases the quantity of goods and services demanded.

An increase in households' desired money holding causes a(n) _____ in interest rates. This causes a(n) _____ in investment spending and aggregate demand.

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes a(n) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

According to the IGM poll, most economists think that the crowding out effects were stronger than the stimulative effects of ARRA.

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

When there is an excess demand for money, households will _ interest-bearing bonds, causing interest rates to _.

Changes in aggregate demand can cause fluctuations in ___ and _ in the short run, and only __ in the long run.

According to the IGM poll, most economists think that the benefits of ARRA exceeded the costs.

The theory of _ states that the _ adjusts to bring money supply and money demand into balance.

According to the Theory of Liquidity Preference, a fall in the _ reduces the amount of money that people wish to hold. As a result, falling interest rates stimulates investment spending and aggregate _.

The Federal Reserve sets ___ policy, while the president and Congress set _ policy. These two policies influence aggregate ___.

The wealth-effect notes that a _ price level increases the real value of households' wealth. The larger real wealth _ the quantity of goods and services demanded.

The _ effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the _ falls causing investment spending to rise and increases the quantity of goods and services demanded.

An increase in households' desired money holding causes a(n) _ in interest rates. This causes a(n) _ in investment spending and aggregate demand.

Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.