Question 1

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

William McChesney Martin, who served as the chairman of the Federal Reserve System from 1951 to 1970, famously said that the Fed's job is "to take away the punch bowl just as the party gets going." This means that the Fed's responsibility is to prevent the economy from overheating and inflation from getting out of control by raising interest rates and reducing the money supply.

Question 2

In the early 1960s,the Kennedy administration made considerable use of

Accepted Answer

In response to slow economic growth, the Kennedy administration used fiscal policy to stimulate the economy through increased government spending and tax cuts. This was known as the New Frontier program, which aimed to boost economic growth and address social issues.

Question 3

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

Accepted Answer

The investment tax credit was designed to incentivize businesses to invest in new equipment and technologies, which increases their productivity and potential output in the long run. This increase in aggregate supply is expected to benefit the economy beyond the short-term increase in aggregate demand resulting from the tax cut.

Question 4

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

Accepted Answer

If businesses and consumers become pessimistic, they may reduce spending and investments, causing a decrease in aggregate demand. The Federal Reserve can attempt to offset this decrease by increasing the money supply. This can be done through open market operations, lowering the federal funds rate, and lowering interest rates. Lower interest rates encourage businesses to borrow, spend and invest, which can stimulate aggregate demand and help to stabilize the economy. Therefore, choice B (increasing the money supply, which lowers interest rates) is the best choice.

Question 5

Keynes used the term "animal spirits" to refer to

Accepted Answer

Keynes used the term "animal spirits" to refer to arbitrary changes in attitudes of household and firms, including fluctuations in confidence, optimism, and pessimism that could affect economic decisions and behavior.

Question 6

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

Accepted Answer

Keynes's ideas were widely accepted by economists by the time JFK was president. JFK's economists were specifically advocating for tax cuts as a way to stimulate economic growth, which is in line with Keynesian economics. Therefore, it is likely that JFK's economists had studied and were influenced by Keynes.

Question 7

Keynes argued that

Accepted Answer

Keynes argued that irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment. This is a central idea in Keynesian economics, which emphasizes the role of government intervention in stabilizing the economy and ensuring full employment.

Question 8

The Kennedy tax cut of 1964 was

Accepted Answer

The answer of The Kennedy tax cut of 1964 was
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Question 9

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

Accepted Answer

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

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?

Accepted Answer

Someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment would advocate for increasing government expenditures. This would help stimulate demand in the economy and create jobs. Decreasing the money supply or increasing taxes would have the opposite effect and could make unemployment worse.

Question 11

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

Accepted Answer

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

Question 12

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 13

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

Accepted Answer

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

Question 14

Monetary policy

Accepted Answer

Monetary policy can be implemented relatively quickly, but its impact on aggregate demand takes some time to show up in the economy. The most significant effects of monetary policy may not be felt for several months after the policy is implemented. Therefore, option B is the best choice.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

Which U.S.president,when asked why he had proposed a tax cut,responded by saying "To stimulate the economy.Don't you remember your Economics 101?"

Accepted Answer

This quote is attributed to President John F. Kennedy during a press conference in 1962. He was advocating for a tax cut to boost economic growth and spur consumer spending. Kennedy was a strong believer in Keynesian economics, which emphasized government intervention in the economy during times of recession.

Question 18

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

Accepted Answer

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

Question 19

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

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

Question 20

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

Accepted Answer

A decrease in net exports is a negative shock to the economy, which could reduce output and employment. To stabilize the output, expansionary fiscal and monetary policies could be used. Increasing government expenditures or increasing the money supply could boost aggregate demand, leading to increased output and employment.

Quiz 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand