Question 1

Which of the following is correct? Investment tax credits

Accepted Answer

Investment is a key to ending a recession as it leads to job creation and economic growth. Investment tax credits can incentivize businesses to increase investments, leading to increased economic activity and potentially ending a recession.

Question 2

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

The 1977 amendment to the Federal Reserve Act of 1913 states that the Fed should promote three goals: price stability, maximum employment, and moderate long-term interest rates.

Question 3

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

Accepted Answer

The answer of Suppose a tax cut affects aggregate demand...

Question 4

When the Federal Open Market Committee meets it

Accepted Answer

The Federal Open Market Committee considers both the current state of the economy and economic forecasts in order to determine the target for the federal funds rate, which is a key tool for conducting monetary policy in accordance with the monetary policy rule set by law. Therefore, option D is the best choice.

Question 5

Tax cuts

Accepted Answer

The answer of Tax cuts
...

Question 6

Which of the following is correct?

Accepted Answer

Well designed tax cuts can provide incentives for businesses to invest, which often fluctuates more than consumption over the business cycle. Tax cuts can stimulate investment by reducing the cost of capital for businesses, thereby increasing their return on investment. This can lead to an increase in economic growth and employment.

Question 7

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Accepted Answer

An increase in government expenditures can lead people to expect future tax increases, which could reduce disposable income and discourage both consumption and investment. Therefore, people are likely to reduce both consumption and investment in response to the expectation of future tax increases.

Question 8

The Federal Open Market Committee

Accepted Answer

The Federal Open Market Committee (FOMC) operates with a high degree of discretion over monetary policy, allowing it to respond to changing economic conditions. There is no specific law mandating it to follow a mechanical rule or to prioritize either low inflation or output stabilization exclusively.

Question 9

The Federal Open Market Committee meets about

Accepted Answer

The Federal Open Market Committee (FOMC) meets about every six weeks to discuss and make decisions about monetary policy, including setting the federal funds rate.

Question 10

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Accepted Answer

Option D is not a valid point as it is a contested point without clear evidence to support it. The other options are valid points in the debate regarding the merits of increasing government expenditures or cutting taxes during a recession.

Question 11

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Accepted Answer

The answer of As compared to a tax cut, an...

Question 12

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

An increase in government spending financed by borrowing will increase the government debt, which ultimately needs to be repaid through future taxes. This leads to an expectation of higher future taxes, causing people to reduce their current consumption expenditures. As future taxes are expected to create larger distortions, people become more uncertain about the future and may therefore save more to protect against the uncertainty. Thus, current consumption expenditures fall.

Question 13

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

The 1977 amendment to the Federal Reserve Act of 1913 mandates that the Federal Reserve should promote price stability and maximum employment, but it does not specify how much weight it should give to each goal. This is known as the dual mandate of the Federal Reserve.

Question 14

As compared to government spending, a tax cut is likely to affect aggregate demand

Accepted Answer

A tax cut would increase disposable income for consumers and businesses, leading to increased consumption and investment. This would have a quicker impact on aggregate demand than government spending, as it takes time for government projects to be planned and implemented. Additionally, tax cuts give individuals and firms more control over how they spend their money, making it less likely that the funds would be spent on projects with little benefit.

Question 15

Which of the following can tax cuts influence?

Accepted Answer

Tax cuts can influence all of the above factors. A tax cut can increase disposable income, which in turn increases consumption spending, leading to an increase in aggregate demand. A reduction in tax rates may also increase the incentive for businesses to invest, leading to an increase in investment spending, which can also contribute to an increase in aggregate demand. Additionally, a reduction in tax rates can increase aggregate supply if it leads to an increase in productivity or labor supply, which can help increase the economy's output.

Question 16

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

The answer of A 1977 amendment to the Federal Reserve...

Question 17

Which of the following can tax cuts influence?

Accepted Answer

Tax cuts can lead to an increase in disposable income for consumers and increase in profits for firms, both of which contribute to an increase in aggregate demand. Additionally, tax cuts can incentivize firms to invest and innovate, leading to an increase in aggregate supply.

Question 18

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Accepted Answer

Both the shift of aggregate demand and the shift of aggregate supply can raise real GDP. An increase in aggregate demand causes an increase in both output and prices. However, an increase in aggregate supply increases output and decreases prices. When both shifts happen together, output will increase while the effect on prices will be ambiguous. Thus, option A is the best answer.

Question 19

As opposed to an increase in government expenditures, a tax cut

Accepted Answer

A tax cut is likely to impact spending faster than an increase in government expenditures because the government must first allocate funds and decide how to spend them. However, according to traditional theory, a tax cut has a smaller multiplier effect than an increase in government expenditures because it relies on individuals to spend their extra income, whereas government expenditures directly inject money into the economy.

Question 20

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

Those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand would not agree with statement D because it suggests that tax cuts have an immediate and full impact on aggregate demand, which they may not believe to be the case. They may argue that government spending can more directly and effectively boost demand by creating jobs and investing in projects that stimulate economic activity.

Quiz 36: Six Debates Over Macroeconomic Policy

Which of the following is correct? Investment tax credits

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

When the Federal Open Market Committee meets it

Tax cuts

Which of the following is correct?

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

The Federal Open Market Committee

The Federal Open Market Committee meets about

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

A 1977 amendment to the Federal Reserve Act of 1913

As compared to government spending, a tax cut is likely to affect aggregate demand

Which of the following can tax cuts influence?

A 1977 amendment to the Federal Reserve Act of 1913

Which of the following can tax cuts influence?

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

As opposed to an increase in government expenditures, a tax cut

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?