Question 1

Suppose there were a large decline in net exports.If the Fed wanted to stabilize output,it could
A) buy bonds to raise interest rates.
B) buy bonds to lower interest rates.
C) sell bonds to raise interest rates.
D) sell bonds to lower interest rates.

Accepted Answer

The answer of Suppose there were a large decline in...

Question 2

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?
A) increase government expenditures or increase the money supply
B) increase government expenditures or decrease the money supply
C) decrease government expenditures or increase the money supply
D) decrease government expenditures or decrease the money supply

Accepted Answer

A decrease in net exports will lead to a decrease in aggregate demand, causing a decrease in output. To stabilize output, expansionary fiscal or monetary policies are needed to increase aggregate demand. Increasing government expenditures or increasing the money supply will both increase aggregate demand and help stabilize output.

Question 3

Figure 21-7. -Refer to Figure 21-7.Which of the following is correct? A) A wave of optimism could move the economy from point a to point b B) If aggregate demand moves from AD₁ to AD₂,the economy will stay at point b in both the short run and long run. C) It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. D) All of the above are correct.

Accepted Answer

Option A is incorrect because a wave of optimism may shift the SRAS to the right and increase output, but it will not move the economy from point a to point b. Option B is incorrect because a shift in aggregate demand from AD₁ to AD₂ will lead to an increase in output and price level, causing the economy to move from point a to point b in the short run, but in the long run, the economy will return to its potential output and the natural rate of unemployment, which is represented by point a. Option C is correct because fiscal or monetary policy could have caused the shift in aggregate demand from AD₁ to AD₂.

Question 4

In 1961,President John F.Kennedy,acting upon advice from his economists,proposed tax cuts.The advice he received
A) was opposed to the teaching of Keynes,who had taught that tax cuts were counterproductive.
B) was opposed to the teaching of Keynes,who had taught that all attempts to stabilize the economy were futile.
C) came from economists who had studied Keynes's ideas when those ideas were only a few years old.
D) came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.

Accepted Answer

The question states that the economists who advised President Kennedy had studied Keynes's ideas when they were only a few years old. This indicates that they were familiar with Keynes's ideas and likely used them to inform their recommendation for tax cuts. Therefore, option C is the best choice. Option A is incorrect because Keynes actually advocated for tax cuts during times of economic downturn. Option B is incorrect because Keynes believed that economic stabilization was possible through government intervention. Option D is also incorrect because Keynes's ideas had already been widely disseminated by the time of Kennedy's presidency.

Question 5

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by
A) increasing the money supply,which raises interest rates.
B) increasing the money supply,which lowers interest rates.
C) decreasing the money supply,which raises interest rates.
D) decreasing the money supply,which lowers interest rates.

Accepted Answer

If businesses and consumers become pessimistic, they may start saving more and spending less, which can decrease demand and lead to a decrease in prices and real GDP. To counteract this, the Federal Reserve can increase the money supply, which will lower interest rates and encourage borrowing and spending. This can help stimulate demand and offset some of the negative effects of pessimism. Therefore, choice B is the best option.

Question 6

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?
A) a decrease in the money supply
B) a reduction in tax rates
C) a decrease in government purchases
D) None of the above is correct.

Accepted Answer

Proponents of stabilization policy would advocate for a reduction in tax rates to stimulate demand and help reduce unemployment. A decrease in the money supply or a decrease in government purchases could actually worsen the unemployment situation by reducing overall demand in the economy.

Question 7

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?
A) decrease taxes
B) increase government expenditures
C) increase the money supply
D) None of the above is correct.

Accepted Answer

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

Question 8

Figure 21-7. 
-Refer to Figure 21-7.If the economy is at point b,a policy to restore full employment would be
A) an increase in the money supply.
B) a decrease in government purchases.
C) an increase in taxes.
D) All of the above are correct.

Accepted Answer

At point b, the economy is experiencing a recessionary gap where actual output is less than potential output. To restore full employment, expansionary monetary policy is needed which would increase the money supply, lower interest rates, and stimulate aggregate demand. Therefore, the correct choice is A) an increase in the money supply.

Question 9

Monetary policy
A) can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B) can be implemented quickly,but most of its impact on aggregate demand occurs months after policy is implemented.
C) cannot be implemented quickly,but once implemented most of its impact on aggregate demand occurs very soon afterward.
D) cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.

Accepted Answer

Although monetary policy can be implemented fairly quickly, there is typically a lag of several months before its full effects are felt on the economy. For example, if the Federal Reserve increases interest rates to slow down inflation, it may take several months for those higher rates to reduce borrowing and spending by consumers and businesses.

Question 10

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?
A) decrease the money supply
B) increase government expenditures
C) increase taxes
D) All of the above are correct.

Accepted Answer

An active stabilization policy during severe unemployment requires the government to increase its spending to create jobs, which would stimulate the economy and reduce unemployment. Decreasing the money supply and increasing taxes would both have the opposite effect, reducing spending and potentially worsening the downturn.

Question 11

Suppose that businesses and consumers become much more optimistic about the future of the economy.To stabilize output,the Federal Reserve could
A) buy bonds to raise interest rates.
B) buy bonds to lower interest rates.
C) sell bonds to raise interest rates.
D) sell bonds to lower interest rates.

Accepted Answer

The answer of Suppose that businesses and consumers become much...

Question 12

A reduction in U.S net exports would shift U.S.aggregate demand
A) rightward.In an attempt to stabilize the economy,the government could raise taxes.
B) rightward.In an attempt to stabilize the economy,the government could cut taxes.
C) leftward.In an attempt to stabilize the economy,the government could raise taxes.
D) leftward.In an attempt to stabilize the economy,the government could cut taxes.

Accepted Answer

The answer of A reduction in U.S net exports would...

Question 13

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?
A) repeal an investment tax credit or increase the money supply
B) repeal an investment tax credit or decrease the money supply
C) institute an investment tax credit or increase the money supply
D) institute an investment tax credit or decrease the money supply

Accepted Answer

The answer of Suppose aggregate demand shifts to the left...

Question 14

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output,it could
A) buy bonds to increase the money supply.
B) buy bonds to decrease the money supply.
C) sell bonds to increase the money supply.
D) sell bonds to decrease the money supply.

Accepted Answer

The answer of Suppose there were a large increase in...

Question 15

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?
A) increase government expenditures or increase the money supply
B) increase government expenditures or decrease the money supply
C) decrease government expenditures or increase the money supply
D) decrease government expenditures or decrease the money supply

Accepted Answer

The answer of The price of imported oil rises.If the...

Question 16

The Kennedy tax cut of 1964 included an investment tax credit that was designed to
A) increase aggregate demand in the short run and aggregate supply in the long run.
B) increase aggregate supply in the short run and aggregate demand in the long run.
C) only increase aggregate supply in the long run.
D) only increase aggregate demand in the short run.

Accepted Answer

The answer of The Kennedy tax cut of 1964 included...

Question 17

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) increase taxes
B) increase the money supply
C) increase government expenditures
D) All of the above are correct.

Accepted Answer

The answer of Which of the following policy alternatives would...

Question 18

The Kennedy tax cut of 1964 was
A) successful in stimulating the economy.
B) designed to shift the aggregate demand curve to the right.
C) designed to shift the aggregate supply curve to the right.
D) All of the above are correct.

Accepted Answer

The answer of The Kennedy tax cut of 1964 was
A)...

Question 19

A policy that results in slow and steady growth of the money supply is an example of
A) an "easy" monetary policy.
B) a "passive" monetary policy.
C) a "practical" monetary policy.
D) an "active" monetary policy.

Accepted Answer

A slow and steady growth of the money supply is characteristic of a passive monetary policy, which is a hands-off approach where the central bank allows the economy to self-regulate without intervention. This is in contrast to an active monetary policy, which involves more direct measures to influence the money supply and interest rates.

Question 20

Figure 21-7. -Refer to Figure 21-7.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of A) an increase in government purchases. B) a decrease in stock prices. C) consumers and firms becoming more optimistic about the future. D) an increase in the price level.

Accepted Answer

The answer of Figure 21-7. 
-Refer to Figure 21-7.The aggregate-demand...

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

Suppose there were a large decline in net exports.If the Fed wanted to stabilize output,it could

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

Figure 21-7. -Refer to Figure 21-7.Which of the following is correct?

In 1961,President John F.Kennedy,acting upon advice from his economists,proposed tax cuts.The advice he received

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

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

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?

Figure 21-7. -Refer to Figure 21-7.If the economy is at point b,a policy to restore full employment would be

Monetary policy

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?

Suppose that businesses and consumers become much more optimistic about the future of the economy.To stabilize output,the Federal Reserve could

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

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

Suppose there were a large increase in net exports.If the Fed wanted to stabilize output,it could

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

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

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

The Kennedy tax cut of 1964 was

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

Figure 21-7. -Refer to Figure 21-7.The aggregate-demand curve could shift from AD1 to AD2 as a result of

Figure 21-7. -Refer to Figure 21-7.The aggregate-demand curve could shift from AD₁ to AD₂ as a result of