Question 1

The Fed will raise the interest rate by the greatest amount when the economy is on the ________ part of the AS curve and there is ________.
A)flat; a decrease in taxes
B)flat; an increase in taxes
C)steep; a decrease in taxes
D)steep; an increase in taxes

Accepted Answer

The Fed is more likely to raise interest rates by a significant amount when the economy is on the steep part of the Aggregate Supply (AS) curve, as this indicates that the economy is near full capacity and inflationary pressures are high. A decrease in taxes can stimulate economic activity further, increasing the risk of inflation, which the Fed would counteract by raising interest rates.

Question 2

If the economy is on the flat portion of the AS curve,
A)there is little crowding out of planned investment.
B)there is almost complete crowding out of planned investment.
C)consumption,but not government spending,crowds out planned investment.
D)government spending,but not consumption,crowds out planned investment.

Accepted Answer

When the economy is on the flat portion of the AS curve, there is little pressure on resources, so firms can increase output without experiencing significant inflationary pressures. This means that there is no increase in interest rates, which leads to little or no crowding out of planned investment. Therefore, choice A is the correct answer.

Question 3

The objective of an expansionary fiscal policy is to
A)reduce unemployment.
B)reduce inflation.
C)reduce growth in output.
D)reduce growth in international trade.

Accepted Answer

An expansionary fiscal policy involves increasing government spending and/or decreasing taxes with the goal of stimulating economic growth and reducing unemployment. This policy can lead to increased consumer spending, increased business investment, and increased employment opportunities, all of which can help reduce unemployment rates.

Question 4

Aggregate demand increases if
A)the government decreases spending.
B)the Fed sells government bonds.
C)the government decreases taxes.
D)the Fed increases the required reserve ratio.

Accepted Answer

Decreasing taxes will increase disposable income for consumers, leading to an increase in consumption spending and ultimately an increase in aggregate demand. Choices A, B, and D will all decrease aggregate demand.

Question 5

The objective of a contractionary fiscal policy is to
A)reduce unemployment.
B)increase growth in output.
C)reduce inflation.
D)increase stagflation.

Accepted Answer

A contractionary fiscal policy aims to decrease the overall demand in the economy, which in turn can help control inflation. In contrast, expansionary fiscal policy is used to increase demand and stimulate economic growth.

Question 6

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in taxes can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Accepted Answer

A decrease in taxes would cause an increase in disposable income, leading to an increase in consumption and a shift from point A to point B along the demand curve.

Question 7

If the economy is on the steep portion of the AS curve and taxes decrease,________ crowds out ________.
A)consumption; planned investment
B)government spending; planned investment
C)planned investment; consumption
D)planned investment; government spending

Accepted Answer

If taxes decrease, consumers will have more disposable income, which will increase consumption. Since the economy is already on the steep portion of the AS curve, increasing demand will lead to higher prices instead of increased output. This means planned investment will be crowded out by consumption as resources become more expensive.

Question 8

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A an increase in government purchases can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Accepted Answer

At Point A, the economy is operating at its potential GDP level. An increase in government purchases will shift the aggregate demand curve to the right, causing an increase in both real GDP and the price level. However, the economy will not move to Point E, as this is beyond the full employment level of output. Instead, the economy will move to Point B, where the increase in real GDP is accompanied by a higher price level.

Question 9

Which of the following is an example of an expansionary fiscal policy?
A)the Fed selling government securities in the open market
B)the federal government increasing the marginal tax rate on incomes above $200,000
C)the federal government increasing the amount of money spent on public health programs
D)the federal government reducing pollution standards to allow firms to produce more output

Accepted Answer

An expansionary fiscal policy is when the government increases its spending and/or decreases taxes in order to stimulate economic growth. Choice C, the federal government increasing the amount of money spent on public health programs, is an example of expansionary fiscal policy as it involves an increase in government spending. Choices A, B, and D, on the other hand, are not examples of expansionary fiscal policy as they involve actions that would decrease government spending or increase taxes.

Question 10

Aggregate demand increases if
A)the government increases spending.
B)the Fed sells government bonds.
C)the government increases taxes.
D)the Fed raises the discount rate.

Accepted Answer

When the government increases its spending, there is an increase in demand for goods and services in the economy, which results in an increase in aggregate demand. Choices B, C, and D would all have the opposite effect and lead to a decrease in aggregate demand.

Question 11

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in the price level can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 12

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level,then the U.S.economy must have been
A)on the very steep part of the short-run aggregate supply curve.
B)on the very flat part of the short-run aggregate supply curve.
C)on the very steep part of the short-run aggregate demand curve.
D)on the very flat part of the short-run aggregate demand curve.

Accepted Answer

A very large increase in aggregate output and a very small increase in the price level suggests that the economy was operating on the flat part of the short-run aggregate supply curve, where there is a large amount of spare capacity in the economy to accommodate the increase in output without much upward pressure on prices. Additionally, a decrease in net taxes would increase aggregate demand, shifting the aggregate demand curve to the right, leading to an increase in output and potentially a small increase in prices as well.

Question 13

A decrease in net taxes at a given price level leads to
A)no change in aggregate demand.
B)an increase in aggregate demand.
C)a decrease in aggregate demand.
D)a decrease in aggregate supply.

Accepted Answer

A decrease in net taxes means consumers have more disposable income, which leads to an increase in consumption spending. This increase in consumption spending increases aggregate demand.

Question 14

An increase in government spending will completely crowd out investment if
A)money supply is increased at the same time.
B)money demand is not sensitive to the interest rate.
C)the economy is operating at capacity.
D)the economy is operating well below capacity.

Accepted Answer

If the economy is operating at full capacity, an increase in government spending will increase demand for goods and services, causing prices to rise. This, in turn, will increase interest rates, making it more expensive for firms to borrow and invest. As a result, investment will be crowded out completely.

Question 15

Fiscal policy affects the goods market through
A)changes in money supply.
B)changes in taxes and money supply.
C)changes in government spending and money supply.
D)changes in taxes and government spending.

Accepted Answer

Fiscal policy refers to changes in government spending and taxes. Changes in taxes and government spending can have a direct impact on the goods market by increasing or decreasing the disposable income of consumers, which in turn can affect the demand for goods and services. Money supply is part of monetary policy, which is a separate tool used by central banks to control inflation and stabilize the economy.

Question 16

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A,an decrease in government purchases can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Accepted Answer

A decrease in government purchases would likely lead to a decrease in aggregate demand, causing the economy to move to a point with lower output and possibly lower price levels, such as Point C.

Question 17

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD² to AD⁰ can be caused by A)a decrease in the price level. B)an increase in the price level. C)a decrease in taxes. D)a decrease in money supply.

Accepted Answer

A decrease in taxes increases disposable income, which increases aggregate demand.

Question 18

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A,an increase in the price level can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Accepted Answer

An increase in the price level will shift the aggregate supply curve to the left, causing the economy to move from Point A to Point E.

Question 19

The aggregate demand curve would shift to the left if
A)government spending were increased.
B)net taxes were increased.
C)the money supply were increased.
D)the cost of energy were to decrease.

Accepted Answer

An increase in net taxes would decrease disposable income, which would lead to a decrease in consumer spending, causing the aggregate demand curve to shift to the left. The other choices would lead to an increase in aggregate demand and a rightward shift of the curve.

Question 20

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD¹ to AD⁰ can be caused by A)a decrease in government spending. B)an increase in money supply. C)a decrease in the price level. D)an increase in the price level.

Accepted Answer

A decrease in government spending reduces overall demand in the economy, causing the aggregate demand curve to shift to the left from AD¹ to AD⁰.

Quiz 13: Policy Effects and Costs Shocks in the Asad Model

The Fed will raise the interest rate by the greatest amount when the economy is on the part of the AS curve and there is .

If the economy is on the flat portion of the AS curve,

The objective of an expansionary fiscal policy is to

Aggregate demand increases if

The objective of a contractionary fiscal policy is to

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in taxes can cause a movement to Point

If the economy is on the steep portion of the AS curve and taxes decrease, crowds out .

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A an increase in government purchases can cause a movement to Point

Which of the following is an example of an expansionary fiscal policy?

Aggregate demand increases if

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in the price level can cause a movement to Point

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level,then the U.S.economy must have been

A decrease in net taxes at a given price level leads to

An increase in government spending will completely crowd out investment if

Fiscal policy affects the goods market through

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,an decrease in government purchases can cause a movement to Point

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD² to AD⁰ can be caused by

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,an increase in the price level can cause a movement to Point

The aggregate demand curve would shift to the left if

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD¹ to AD⁰ can be caused by

Quiz 13: Policy Effects and Costs Shocks in the Asad Model

The Fed will raise the interest rate by the greatest amount when the economy is on the ________ part of the AS curve and there is ________.

If the economy is on the flat portion of the AS curve,

The objective of an expansionary fiscal policy is to

Aggregate demand increases if

The objective of a contractionary fiscal policy is to

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in taxes can cause a movement to Point

If the economy is on the steep portion of the AS curve and taxes decrease,________ crowds out ________.

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A an increase in government purchases can cause a movement to Point

Which of the following is an example of an expansionary fiscal policy?

Aggregate demand increases if

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,a decrease in the price level can cause a movement to Point

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level,then the U.S.economy must have been

A decrease in net taxes at a given price level leads to

An increase in government spending will completely crowd out investment if

Fiscal policy affects the goods market through

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,an decrease in government purchases can cause a movement to Point

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD2 to AD0 can be caused by

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.Suppose the economy is at Point A,an increase in the price level can cause a movement to Point

The aggregate demand curve would shift to the left if

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD1 to AD0 can be caused by

The Fed will raise the interest rate by the greatest amount when the economy is on the part of the AS curve and there is .

If the economy is on the steep portion of the AS curve and taxes decrease, crowds out .

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD² to AD⁰ can be caused by

Refer to the information provided in Figure 13.1 below to answer the questions that follow. Figure 13.1 -Refer to Figure 13.1.An aggregate demand shift from AD¹ to AD⁰ can be caused by