Question 1

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, which can lead to lower interest rates and increased investment spending. This can help to offset the decrease in aggregate demand and stabilize output. Additionally, the purchases move the price level closer to its original level, which can help to prevent deflationary pressures.

Question 2

Policymakers following a "lean against the wind" policy would

Accepted Answer

A

Question 3

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

Accepted Answer

When households and firms become more pessimistic, they decrease their spending which leads to a decrease in aggregate demand. This decrease in demand causes a fall in real GDP and an increase in unemployment rates.

Question 4

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

Leaning against the wind refers to using countercyclical fiscal policy to mitigate the negative effects of an economic downturn. In other words, the government increases its spending during recessions to stimulate economic growth. Therefore, choice C, an increase in government expenditures when there is a recession, is the best example of leaning against the wind. Choices A and B involve contractionary policies during a recession, which would exacerbate the economic downturn.

Question 5

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 6

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

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

Question 7

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

Accepted Answer

The answer of If the unemployment rate falls below its...

Question 8

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

Having the Fed purchase government bonds is a form of expansionary monetary policy, which can increase the money supply and stimulate aggregate demand to promote economic growth and full employment. Options A and B would have the opposite effect, reducing aggregate demand and potentially exacerbating the problem, while option D would also reduce aggregate demand and could lead to deflation.

Question 9

"Leaning against the wind" is exemplified by a

Accepted Answer

"Leaning against the wind" refers to using a policy action to counteract the effects of an economic shock, such as a recession. A tax cut during a recession would increase disposable income and encourage spending, thus stimulating the economy. Decreasing the money supply or decreasing government expenditures during a recession could worsen the economic downturn, making options B and C less desirable. Therefore, A is the best choice as it represents a policy action that is intended to stimulate the economy during a recession.

Question 10

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 11

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

Accepted Answer

In an economic recession, policymakers could implement expansionary fiscal policy which involves increasing government spending and decreasing taxes to boost aggregate demand. Additionally, increasing the money supply through monetary policy can also stimulate economic activity. Option A is incorrect because increasing taxes and government spending do not work together to stimulate the economy. Option B is also incorrect because decreasing government spending would lead to further contraction in the economy. Option D is incorrect because decreasing the money supply would further tighten credit conditions and exacerbate the recession.

Question 12

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 future of the economy, they are more likely to save their money rather than spend it. This decrease in spending leads to a decrease in aggregate demand, which shifts the aggregate demand curve to the left. This can result in a decrease in output and an increase in unemployment, as well as potentially decreasing prices if firms need to lower their prices to incentivize consumers to spend.

Question 13

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

Accepted Answer

Decreasing taxes would increase disposable income, leading to an increase in consumption spending, which would help mitigate the decrease in aggregate demand and stabilize the economy. Decreasing the money supply (A) could lead to higher interest rates, which could further decrease aggregate demand. Decreasing government expenditures (B) could have a contractionary effect on the economy, making the situation worse. Doing nothing (D) would likely result in a continued decrease in aggregate demand and potentially lead to a recession.

Question 14

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

Increasing government expenditures is a key tool for stabilizing the economy when aggregate demand is insufficient to ensure full employment. By increasing government spending, the government can create jobs and stimulate demand for goods and services, which in turn can help to boost economic growth and reduce unemployment. Decreasing the money supply or increasing taxes may actually have the opposite effect, slowing down economic growth and exacerbating the problem of insufficient demand. Doing nothing and letting markets correct themselves is also unlikely to be effective, as markets may not be able to correct themselves quickly enough to prevent significant economic damage.

Question 15

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

Accepted Answer

Increasing the money supply and cutting taxes would stimulate demand in the economy, encouraging firms to hire more workers to keep up with increased demand. This would help reduce unemployment. Decreasing the money supply and increasing taxes would have the opposite effect, reducing demand in the economy and potentially leading to higher unemployment.

Question 16

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 and investments, which ultimately leads to a decrease in aggregate demand. This, in turn, can result in lower production levels and potentially layoffs, leading to an increase in the unemployment rate.

Question 17

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

The "lean against the wind" policy suggests that the government should take actions to counteract the effects of economic instability. In this case, if firms were decreasing expenditures on capital due to uncertainty surrounding rising oil prices, the government could increase its own expenditures to stimulate demand and offset the decline in investment. This would promote economic stability and mitigate the negative impact of uncertainty. Therefore, increasing government expenditures is the best choice for this scenario. Decreasing the money supply (choice A) or increasing taxes (choice B) could potentially exacerbate the negative effects of decreased investment, leading to further economic instability.

Question 18

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 19

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

Accepted Answer

Decreasing taxes and increasing government spending would be appropriate policies to reduce the unemployment rate. Decreasing taxes would encourage businesses to invest and potentially create more jobs, while increasing government spending could create job opportunities through public works projects and government hiring. Increasing taxes and decreasing government spending, as in options A and B, could potentially harm the economy and lead to further job losses. Decreasing taxes and decreasing government spending, as in option D, may not provide enough stimulus to create new jobs.

Question 20

Fluctuations in employment and output result from changes in

Accepted Answer

Fluctuations in employment and output can result from changes in both aggregate demand (the total demand for goods and services in the economy) and aggregate supply (the total amount of goods and services that firms are willing and able to produce). For example, an increase in consumer confidence or government spending can increase aggregate demand, leading to increased production and employment. Conversely, a decrease in productivity or an increase in production costs can reduce aggregate supply, leading to lower production and employment. Therefore, both aggregate demand and aggregate supply are important factors in understanding fluctuations in employment and output in the economy.

Quiz 36: Six Debates Over Macroeconomic Policy

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

Policymakers following a "lean against the wind" policy would

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

"Leaning against the wind" is exemplified by a(n)

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

"Leaning against the wind" is exemplified by a(n)

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

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

"Leaning against the wind" is exemplified by a

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

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

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

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

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

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

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

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

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

Fluctuations in employment and output result from changes in