Question 1

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 2

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 3

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...

Question 4

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will
A) increase government spending.
B) increase the money supply.
C) decrease government spending.
D) decrease the money supply.

Accepted Answer

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

Question 5

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would
A) increase government spending.
B) increase the money supply.
C) decrease government spending.
D) decrease the money supply.

Accepted Answer

The answer of Suppose there is an increase in government...

Question 6

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 increase expenditures.
B) rightward. In an attempt to stabilize the economy, the government could decrease expenditures.
C) leftward. In an attempt to stabilize the economy, the government could increase expenditures.
D) leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Accepted Answer

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

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

Accepted Answer

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

Question 8

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

Monetary policy can be implemented relatively quickly, but it takes time for the effects to be felt on the economy. It often takes several months for changes in interest rates or other policy tools to have a significant impact on the aggregate demand. Therefore, option B is the best choice.

Question 9

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, the Federal Reserve can increase the money supply, which will lower interest rates. This will incentivize businesses and consumers to borrow more money and spend more, stimulating economic growth and reducing the impact on the price level and real GDP. Decreasing the money supply, as in choice C and D, would likely have the opposite effect and exacerbate the negative economic outlook. Increasing the money supply would have the most positive impact on the economy, as in choice B.

Question 10

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would
A) increase government spending.
B) increase the money supply.
C) decrease government spending.
D) decrease the money supply.

Accepted Answer

To stabilize output and counter the increase in money demand, the Federal Reserve would increase the money supply. This would help to lower interest rates and encourage households to spend more, thus stimulating economic growth and stabilizing output. Increasing government spending or decreasing government spending would not directly impact the money supply, and decreasing the money supply would only exacerbate the problem of households attempting to increase their money holdings.

Question 11

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 12

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 13

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 14

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

Accepted Answer

Decreasing taxes or increasing the money supply can stimulate domestic consumption and investment, which can help offset the negative effects of a large decrease in net exports. Increasing taxes or decreasing money supply can dampen domestic consumption and investment, which can further harm output.

Question 15

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

A decline in net exports would lead to a decrease in aggregate demand, causing output to decline. To stabilize output, the Fed could buy bonds to lower interest rates, which would stimulate investment and consumption spending, increasing aggregate demand and offsetting the decline in net exports. Selling bonds to raise interest rates would have the opposite effect, further decreasing aggregate demand and exacerbating the decline in output.

Question 16

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would
A) increase government spending.
B) increase the money supply.
C) decrease government spending.
D) decrease the money supply.

Accepted Answer

The correct way to counter the negative effects of rising interest rates would be to increase the money supply. This would cause interest rates to fall and stimulate economic growth. In contrast, increasing government spending might exacerbate inflation and increase interest rates further. Decreasing government spending and the money supply might further reduce output and increase unemployment.

Question 17

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could
A) increase the money supply, which will reduce interest rates.
B) decrease the money supply, which will reduce interest rates.
C) increase the money supply, which will increase interest rates.
D) decrease the money supply, which will increase interest rates.

Accepted Answer

To stabilize output in the face of increased net exports, the Fed might aim to counteract the inflationary pressure by decreasing the money supply, which would lead to higher interest rates, thereby cooling down the economy.

Question 18

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 proposal for tax cuts was based on advice from economists who had studied Keynes's ideas when those ideas were only a few years old. Keynes was a prominent economist during the early 20th century, and his ideas had already been widely disseminated and taught by the time of Kennedy's presidency, so options A and B are incorrect. Option D is also incorrect as Keynes's ideas had been disseminated widely by the time of Kennedy's administration.

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

Accepted Answer

Active stabilization policy aims to reduce unemployment during an economic recession. To achieve this, the government needs to increase its spending so that aggregate demand increases, leading to an increase in production and, ultimately, a decrease in unemployment. Decreasing the money supply or increasing taxes may reduce aggregate demand, making the situation worse for those already unemployed. Therefore, increasing government expenditures is the best choice for someone advocating for an active stabilization policy during severe unemployment.

Question 20

Suppose there is a tax increase. To stabilize output, the Federal Reserve will
A) increase government spending.
B) increase the money supply.
C) decrease government spending.
D) decrease the money supply.

Accepted Answer

If there is a tax increase, it will decrease disposable income and aggregate demand. To stabilize output, the Federal Reserve can increase the money supply to increase aggregate demand back to its original level. This can be done through open market operations, decreasing the reserve ratio, or decreasing the discount rate. Increasing government spending would also increase aggregate demand, but it is not the Federal Reserve's responsibility to determine government spending.

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

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

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

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

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

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

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

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?

Monetary policy

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

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would

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

The Kennedy tax cut of 1964 was

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

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

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

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would

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

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

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 there is a tax increase. To stabilize output, the Federal Reserve will