Question 1

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

Accepted Answer

C

Question 2

Policymakers following a "lean against the wind" policy would

Accepted Answer

A

Question 3

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Accepted Answer

If aggregate demand falls, it means that consumers and firms are spending less, leading to a slowdown in economic activity. In order to stabilize the economy, the government can decrease taxes, which would increase disposable income and encourage consumer spending. Decreasing the money supply or government expenditures may further decrease aggregate demand and worsen the economic situation, while doing nothing would not address the problem. Therefore, decreasing taxes is the best choice.

Question 4

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

The answer of When aggregate demand is high, risking higher...

Question 5

"Leaning against the wind" is exemplified by an)

Accepted Answer

"Leaning against the wind" refers to using government policies to counteract a recession. Therefore, the best choice is C, which involves increasing government expenditures during a recession to stimulate economic growth. A tax increase (choice A) would likely worsen a recession by reducing consumer spending, and a decrease in the money supply (choice B) could also worsen a recession by reducing businesses' ability to finance investments and operations.

Question 6

"Leaning against the wind" is exemplified by a

Accepted Answer

"Leaning against the wind" refers to economic policies that counteract the natural economic cycle, such as reducing taxes during a recession to stimulate spending. Therefore, option A is the best choice. Options B and C go along with the natural economic cycle and are not examples of "leaning against the wind."

Question 7

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

Decreasing taxes can provide individuals and businesses with more disposable income and encourage spending and investment, leading to job creation. Increasing government spending can also stimulate job growth through infrastructure projects and other programs that directly create employment opportunities. Option A and B both involve increasing taxes, which can discourage spending and investment and potentially lead to further job losses. Option D involves decreasing government spending, which can potentially lead to job cuts in the public sector and reduced economic activity overall.

Question 8

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

In times of recession, policymakers typically use expansionary fiscal policy to stimulate the economy. This involves increasing government spending and/or decreasing taxes in order to increase consumer and business spending. Additionally, policymakers may use expansionary monetary policy by increasing the money supply to make loans cheaper and thus encouraging investment and spending. Option C satisfies these criteria, while the other options have at least one policy that would hinder economic growth in a recessionary environment (e.g. increasing taxes or decreasing government spending).

Question 9

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

"Lean against the wind" policies aim to counteract the negative effects of economic shocks or uncertainties, such as a potential rise in oil prices, by stimulating aggregate demand. Increasing government expenditures is a tool of expansionary fiscal policy that can help boost economic growth and offset the decrease in private sector spending on capital. Decreasing the money supply (choice A) is a tool of contractionary monetary policy, which would likely further depress private sector spending and exacerbate the negative effects of the uncertainty shock. Increasing taxes (choice B) could also decrease aggregate demand and might not be advisable during a period of economic uncertainty.

Question 10

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Accepted Answer

The answer of Suppose there is a decrease in short-run...

Question 11

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

When aggregate demand is too low to ensure full employment, the best option is for the Fed to use monetary policy by purchasing government bonds. This increases the money supply, lowers interest rates, and encourages borrowing and spending, which in turn boosts aggregate demand and helps to stabilize the economy. Cutting government spending, raising taxes or reducing the money supply would worsen the situation by further decreasing aggregate demand.

Question 12

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

Advocating for an increase in government expenditures is the most effective way to ensure full employment during times of insufficient aggregate demand. This will increase demand for goods and services, leading to increased production and employment. Decreasing the money supply (option A) and increasing taxes (option B) would have the opposite effect, reducing demand and potentially worsening the situation. Doing nothing (option D) would not address the issue and may lead to prolonged economic stagnation.

Question 13

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

When households and firms become more pessimistic, they tend to decrease their spending, which leads to a decrease in aggregate demand. This leads to a downward spiral of falling real GDP and a rising unemployment rate.

Question 14

"Leaning against the wind" is exemplified by an)

Accepted Answer

The answer of "Leaning against the wind" is exemplified by...

Question 15

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

When households and firms become more pessimistic, they are less likely to spend money on goods and services, which leads to decreased demand for goods and services. This in turn can lead to decreased production by firms, and result in layoffs and an increase in the unemployment rate.

Question 16

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

The answer of If aggregate demand shifts because of a...

Question 17

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Accepted Answer

Buying bonds increases the money supply, leading to lower interest rates and increased investment and consumption, which can help stabilize output in the face of a decrease in aggregate demand. Additionally, these purchases can help move the price level closer to its original level, helping to mitigate any deflationary pressures caused by the decrease in aggregate demand.

Question 18

Fluctuations in employment and output result from changes in

Accepted Answer

Fluctuations in employment and output result from changes in both aggregate demand and aggregate supply. Changes in aggregate demand affect overall spending in the economy, causing firms to adjust output and employment levels accordingly. Similarly, changes in aggregate supply, such as technological improvements or changes in input costs, can affect firms' profit margins and their willingness to hire or produce more goods and services. Thus, both factors play a role in determining fluctuations in employment and output in the economy.

Question 19

If the unemployment rate rises, which policies would be appropriate to reduce it?

Accepted Answer

Increasing the money supply would put more money into circulation, making it easier for businesses to borrow and invest, creating jobs. Cutting taxes would also stimulate business growth and investment, leading to more job opportunities. Option A would potentially lead to inflation and discourage businesses from investing. Options C and D would likely lead to a decrease in consumer spending and business growth, exacerbating the unemployment problem.

Question 20

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Accepted Answer

When consumers become less optimistic about the economy, they are likely to reduce their spending. This leads to a decrease in aggregate demand, which shifts the aggregate demand curve to the left. This results in a lower level of output and employment, and can potentially lead to lower prices in the long run.

Quiz 23: Six Debates Over Macroeconomic Policy

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

Policymakers following a "lean against the wind" policy would

Suppose aggregate demand fell. In order to stabilize the economy, the government might

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

"Leaning against the wind" is exemplified by an)

"Leaning against the wind" is exemplified by a

If the unemployment rate rises, which policies would both be appropriate to reduce it?

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Which of the following likely occurs when households and firms become more pessimistic?

"Leaning against the wind" is exemplified by an)

Which of the following likely occurs when households and firms become more pessimistic?

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Fluctuations in employment and output result from changes in

If the unemployment rate rises, which policies would be appropriate to reduce it?

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to