Question 1

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

Accepted Answer

During recessions, government revenues often decrease due to lower tax incomes, while spending increases due to higher demand for public services and potential stimulus measures, leading to budget deficits.

Question 2

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 3

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 4

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 implies that the federal government has a responsibility to use economic policy measures to counteract fluctuations in the economy, aiming to stabilize aggregate demand by adjusting spending, taxation, and monetary policies to maintain employment and control inflation.

Question 5

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 6

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

Accepted Answer

Automatic stabilizers, such as unemployment insurance and progressive taxation, can mitigate the severity of economic fluctuations but are not powerful enough to prevent recessions altogether. Recessions can be caused by a wide range of factors that automatic stabilizers cannot fully counteract.

Question 7

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

Accepted Answer

One of President Obama's first major policy initiatives after taking office in 2009 was the American Recovery and Reinvestment Act (ARRA), a stimulus bill that aimed to combat the Great Recession. It included significant increases in government spending to stimulate the economy.

Question 8

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 9

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 10

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 11

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 12

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 13

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

Accepted Answer

The IGM poll indicates that a majority of economists believe the benefits of the American Recovery and Reinvestment Act (ARRA) exceeded its costs, reflecting a consensus that the economic stimulus provided by the ARRA was beneficial overall.

Question 14

​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 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

During a recession, an increase in unemployment benefits provides individuals with additional income, which in turn allows them to maintain or increase their consumption. This increase in consumption contributes to higher aggregate demand than would be the case without the rise in benefits.

Question 17

​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

Economists argue that a balanced budget amendment would limit the government's ability to use fiscal policy to respond to economic downturns, potentially exacerbating recessions and making the business cycle more volatile.

Question 18

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 19

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 20

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

Economists' concerns about the active use of monetary and fiscal policy often revolve around issues like timing, effectiveness, and potential long-term side effects (such as inflation from monetary policy or increased debt from fiscal policy), rather than a lack of theoretical understanding. The theoretical frameworks for both policies are well-established, but their practical application and outcomes can be unpredictable and subject to debate.

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

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

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

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

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

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

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

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.

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

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

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.

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.

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

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

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

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.

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

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.

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.

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

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

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

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

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

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

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

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.

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

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

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.

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.​

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

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

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

​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.

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

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.

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.

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

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

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

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.

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

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

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.

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.

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

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

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.

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

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.