Question 1

Figure 34-9 
-Refer to Figure 34-9.Suppose the economy is currently at point A.To restore full employment,the appropriate fiscal response

Accepted Answer

The answer of Figure 34-9 
-Refer to Figure 34-9.Suppose the...

Question 2

For the following questions,use the diagram below: Figure 34-7. -Refer to Figure 34-7.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of

Accepted Answer

The answer of For the following questions,use the diagram below:
Figure...

Question 3

Suppose households attempt to decrease their money holdings.To counter this decrease in money demand and stabilize output,the Federal Reserve will

Accepted Answer

The answer of Suppose households attempt to decrease their money...

Question 4

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Accepted Answer

Increasing government expenditures or increasing the money supply can help stabilize output by boosting aggregate demand, counteracting the negative effects of rising oil prices.

Question 5

Critics of stabilization policy argue that

Accepted Answer

Critics of stabilization policy argue that policy affects aggregate demand with a lag, meaning the effects are not immediately felt. However, once the effects do take hold, they are long-lived. Therefore, choice B is the most accurate statement. Choices A and C are incorrect because they have conflicting information about the length of the effects. Choice D is incorrect because stabilization policy is designed specifically to affect aggregate demand.

Question 6

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Accepted Answer

To stabilize output when aggregate demand shifts left, policymakers can institute an investment tax credit to encourage investment or increase the money supply to boost spending.

Question 7

Which of the following statements generates the greatest amount of disagreement among economists?

Accepted Answer

There is significant debate among economists about the effectiveness and timing of fiscal policy interventions, with differing views on whether government intervention helps stabilize the economy or leads to inefficiencies and unintended consequences.

Question 8

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

Proponents of stabilization policy would advocate for an increase in government purchases when the economy is experiencing severe unemployment. This is because an increase in government spending can lead to an increase in aggregate demand, which can in turn create more jobs and reduce unemployment. Options A, B, and D would all likely have contractionary effects on the economy and could worsen unemployment.

Question 9

Figure 34-9 
-Refer to Figure 34-9.Suppose the economy is currently at point A.To restore full employment,the Federal Reserve should

Accepted Answer

The answer of Figure 34-9 
-Refer to Figure 34-9.Suppose the...

Question 10

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

Accepted Answer

Increasing taxes would help to counteract the increase in aggregate demand caused by the rise in investment spending, thus stabilizing output.

Question 11

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A policy that results in slow and steady growth of the money supply is an example of a "passive" monetary policy where the central bank takes a hands-off approach and allows the market forces to determine the money supply. It is a more conservative approach compared to an "easy" or "active" monetary policy where the central bank actively intervenes in the market to adjust the money supply in response to economic conditions. A "practical" monetary policy is not a commonly used term in economics.

Question 12

Critics of stabilization policy argue that

Accepted Answer

All three statements are true and are commonly cited as criticisms of stabilization policy. The time lag between policy implementation and its impact on the economy can reduce its effectiveness. Additionally, the effects of policy may continue even after the original problem has been rectified. Finally, some critics argue that policy itself can create economic fluctuations by distorting market signals and creating unintended consequences.

Question 13

For the following questions,use the diagram below:
Figure 34-7. 
-Refer to Figure 34-7.Which of the following is correct?

Accepted Answer

We can see from the figure that moving from AD₁ to AD₂ results in a shift from point a to point b, which means that Option A is incorrect. Option B is also incorrect because in the long run, the economy will move from point b to its potential GDP trajectory. Therefore, only Option C is correct, as both fiscal and monetary policy can influence aggregate demand and cause a shift from AD₁ to AD₂.

Question 14

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

The answer of Which of the following policies would Keynes's...

Question 15

For the following questions,use the diagram below:
Figure 34-7. 
-Refer to Figure 34-7.If the economy is at point b,a policy to restore full employment would be

Accepted Answer

Point b is below the full employment level of output, so to restore full employment, the economy needs to expand. One way to achieve this is by increasing the money supply, which can lead to lower interest rates and higher investment and consumption spending. Decreasing government purchases or increasing taxes could have a contractionary effect on the economy and make it more difficult to achieve full employment.

Question 16

Most recessions and depressions

Accepted Answer

Most recessions and depressions occur with little advance warning. Economic indicators such as GDP, employment levels, and consumer spending can give some indication of a possible downturn, but these signals are usually imprecise and can be misleading. It is often difficult to predict the onset and severity of a recession or depression due to the complex and dynamic nature of the global economy. Therefore, most recessions and depressions come as a surprise and catch many people off guard.

Question 17

Some economists argue that

Accepted Answer

All three statements are correct. Some economists argue that monetary policy should be used to stabilize the economy by adjusting interest rates and money supply. Others argue that fiscal policy should be used through government spending and tax policies. Additionally, fiscal policy can be used to shift the aggregate demand curve through changes in government spending or taxes.

Question 18

A reduction in U.S net exports would shift U.S.aggregate demand

Accepted Answer

A reduction in U.S. net exports decreases aggregate demand, shifting it leftward. To stabilize the economy, the government could increase expenditures to boost aggregate demand.

Question 19

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

When the economy is experiencing severe unemployment, an active stabilization policy would advocate for an increase in government expenditures to stimulate aggregate demand and create jobs. Decreasing the money supply or increasing taxes could have contractionary effects on the economy and worsen the unemployment situation.

Question 20

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?

Accepted Answer

If there is a large decrease in U.S. net exports, it means that the economy is experiencing a drop in foreign demand for domestically produced goods and services. This can lead to a decrease in aggregate demand and output, potentially causing a recession. To counteract this, the government can decrease taxes or increase the money supply to stimulate spending and investment in the domestic economy. Decreasing taxes puts more money in consumers' pockets, which can increase consumption, while increasing the money supply lowers interest rates and makes it easier for businesses to borrow and invest. Both of these policies can help stabilize output during a period of decreased net exports.

Quiz 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: Using Policy to Stabilize the Economy

Figure 34-9 -Refer to Figure 34-9.Suppose the economy is currently at point A.To restore full employment,the appropriate fiscal response

For the following questions,use the diagram below: Figure 34-7. -Refer to Figure 34-7.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Suppose households attempt to decrease their money holdings.To counter this decrease in money demand and stabilize output,the Federal Reserve will

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Critics of stabilization policy argue that

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Which of the following statements generates the greatest amount of disagreement among economists?

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Figure 34-9 -Refer to Figure 34-9.Suppose the economy is currently at point A.To restore full employment,the Federal Reserve should

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending,assuming policymakers want to stabilize output?

A policy that results in slow and steady growth of the money supply is an example of

Critics of stabilization policy argue that

For the following questions,use the diagram below: Figure 34-7. -Refer to Figure 34-7.Which of the following is correct?

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

For the following questions,use the diagram below: Figure 34-7. -Refer to Figure 34-7.If the economy is at point b,a policy to restore full employment would be

Most recessions and depressions

Some economists argue that

A reduction in U.S net exports would shift U.S.aggregate demand

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?