Deck 36: 1: Sec 361 Mc Should Monetary and Fiscal Policymakers Try to Stabilize the Economy

Question 1

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

A)decrease the money supply.
B)decrease government expenditures.
C)decrease taxes.
D)do nothing.

Answer 1

C

Question 2

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

A)increasing government spending.
B)expanding the money supply.
C)lowering taxes.
D)the Fed sell government bonds.

Answer 2

C

Question 3

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

A)increase the money supply,increase taxes
B)increase the money supply,cut taxes
C)decrease the money supply,increase taxes
D)decrease the money supply,cut taxes

Answer 3

B

Question 4

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

A)increased spending,increased aggregate demand,rising real GDP,and a rising unemployment rate
B)decreased spending,increased aggregate demand,rising real GDP,and a falling unemployment rate
C)decreased spending,decreased aggregate demand,falling real GDP,and a rising unemployment rate
D)decreased spending,decreased aggregate demand,falling real GDP,and a falling unemployment rate

Question 5

Policymakers following a "lean against the wind" policy would

A)increase government expenditures when output is low and decrease them when output is high.
B)increase government expenditures when output is low and do nothing when output is high.
C)decrease government expenditures when output is low and increase them when output is high.
D)decrease government expenditures when output is high and do nothing when output is low.

Question 6

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

A)increase taxes,increase government spending
B)increase taxes,decrease government spending
C)decrease taxes,increase government spending
D)decrease taxes,decrease government spending

Question 7

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

A)decrease the money supply
B)increase taxes
C)increase government expenditures
D)Do nothing and let markets correct themselves.

Question 8

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

A)increase the money supply,increase taxes
B)increase the money supply,cut taxes
C)decrease the money supply,increase taxes
D)decrease the money supply,cut taxes

Question 9

Suppose there is a decrease in short-run aggregate supply.If the Federal Reserve wants to stabilize output it should

A)buy bonds.These purchases also move the price level closer to its original level.
B)buy bonds.However these purchases move the price level farther from its original level.
C)sell bonds.These purchases also move the price level closer to its original level.
D)sell bonds.However these purchase move the price level farther from its original level.

Question 10

Fluctuations in employment and output result from changes in

A)aggregate demand only.
B)aggregate supply only.
C)aggregate demand and aggregate supply.
D)neither aggregate demand nor aggregate supply.

Question 11

"Leaning against the wind" is exemplified by a

A)tax cut when there is a recession.
B)decrease in the money supply when there is a recession.
C)decrease in government expenditures when there is a recession.
D)All of the above are correct.

Question 12

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

A)increased spending
B)increased aggregate demand
C)increased real GDP
D)an increase in the unemployment rate

Question 13

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

A)tax increase when there is a recession.
B)decrease in the money supply when there is a recession.
C)increase in government expenditures when there is a recession.
D)All of the above are correct.

Question 14

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

A)tax increase when there is a recession.
B)increase in the money supply when there is a recession.
C)decrease in government expenditures when there is a recession.
D)All of the above are correct.

Question 15

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

A)cutting government spending.
B)raising taxes.
C)having the Fed purchase government bonds.
D)reducing the money supply.

Question 16

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

A)buy bonds.These purchases also move the price level closer to its original level.
B)buy bonds.However these purchases move the price level farther from its original level.
C)sell bonds.These sales also move the price level closer to its original level.
D)sell bonds.However these sales move the price level farther from its original level.

Question 17

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

A)Federal Reserve increase the money supply or the government increase taxes.
B)Federal Reserve increase the money supply or the government decrease taxes.
C)Federal Reserve decrease the money supply or the government increase taxes.
D)Federal Reserve decrease the money supply or the government decrease taxes.

Question 18

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

A)increase the money supply,increase taxes,increase government spending
B)increase the money supply,increase taxes,decrease government spending
C)increase the money supply,decrease taxes,increase government spending
D)decrease the money supply,increase taxes,decrease government spending

Question 19

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

A)decreasing the money supply.
B)increasing taxes.
C)increasing government expenditures.
D)All of the above

Question 20

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

A)shift aggregate demand to the left.
B)increase output.
C)decrease unemployment.
D)increase prices.

Question 21

Which of the following is correct?

A)Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

Question 22

If the natural rate of unemployment is 6%,but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%,then in the short run which of the following variables will the Fed's policy raise?

A)the price level and real GDP
B)the price level but not real GDP
C)real GDP but not the price level
D)neither real GDP nor the price level

Question 23

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis.According to the aggregate supply and aggregate demand,model which of these policies would tend to reduce unemployment?

A)both the tax cut and the increase in government expenditures
B)the tax cut but not the increase in government expenditures
C)the increase in government expenditures but not the tax cut
D)neither the increase in government expenditures nor the tax cut

Question 24

If financial turmoil overseas reduces U.S.net exports,then those in favor of "lean against the wind policies" would advocate

A)decreasing the money supply and cutting taxes.
B)decreasing the money supply and raising taxes.
C)increasing the money supply and cutting taxes.
D)increasing the money supply and raising taxes.

Question 25

The Fed lowered interest rates in 2007 and 2008.This implies,other things the same,that the Fed

A)increased the money supply because it was concerned about unemployment.
B)increased the money supply because it was concerned about inflation.
C)decreased the money supply because it was concerned about unemployment.
D)decreased the money supply because it was concerned about inflation.

Question 26

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

A)increased the money supply because it was concerned about unemployment.
B)increased the money supply because it was concerned about inflation.
C)decreased the money supply because it was concerned about unemployment.
D)decreased the money supply because it was concerned about inflation.

Question 27

The principal lag for monetary policy

A)and fiscal policy is the time it takes to implement policy.
B)and fiscal policy is the time it takes for policy to change spending.
C)is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending.
D)is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it.

Question 28

The Fed lowered interest rates in 2001 and 2002.This implies,other things the same,that the Fed

A)increased the money supply because it was concerned about unemployment.
B)increased the money supply because it was concerned about inflation.
C)decreased the money supply because it was concerned about unemployment.
D)decreased the money supply because it was concerned about inflation.

Question 29

The Federal Reserve will tend to tighten monetary policy when

A)interest rates are rising too rapidly.
B)it thinks the unemployment rate is too high.
C)the growth rate of real GDP is quite sluggish.
D)it thinks inflation is too high today,or will become too high in the future.

Question 30

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

A)both the tax cut and the increase in government expenditures would tend to increase output.
B)only the tax cut would tend to increase output.
C)only the increase in government expenditures would tend to increase output.
D)neither the tax cut nor the increase in government expenditures would tend to increase output.

Question 31

Opponents of using policy to stabilize the economy generally believe that

A)neither fiscal nor monetary policy have much impact on aggregate demand.
B)attempts to stabilize the economy decrease the magnitude of economic fluctuations.
C)unemployment and inflation are not cause for much concern.
D)economic conditions can easily change between the start of policy action and when it takes effect.

Question 32

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

A)The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict.
B)The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict.
C)The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict.
D)The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.

Question 33

The Federal Reserve

A)requires little time to change policy and aggregate demand responds quickly.
B)requires little time to change policy but aggregate demand responds slowly.
C)usually requires a substantial time to change policy but aggregate demand responds quickly.
D)usually requires a substantial time to change policy and aggregate demand responds slowly.

Question 34

The principal reason that monetary policy has lags is that it takes a long time for

A)changes in the interest rate to change aggregate demand.
B)changes in the money supply to change interest rates.
C)the Fed to make changes in policy.
D)Congress and the President to approve Fed policy.

Question 35

If the Fed announced its intention to sell bonds,then it would be signaling that it was going to

A)raise the money supply.It could do this to counter high unemployment.
B)raise the money supply.It could do this to counter high inflation.
C)reduce the money supply.It could do this to counter high unemployment.
D)reduce the money supply.It could do this to counter high inflation.

Question 36

For which of the following policies is there a significant implementation lag?

A)fiscal policy and monetary policy
B)fiscal policy but not monetary policy
C)monetary policy but not fiscal policy
D)neither monetary policy nor fiscal policy

Question 37

Part of the lag in monetary policy effects is due to

A)the long political process of monetary policy decisions.
B)precise economic forecasts.
C)the time required for firms and households to alter their spending plans.
D)changes in the unemployment rate.

Question 38

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

A)increasing government spending.
B)decreasing the money supply.
C)increasing taxes.
D)undertaking no policy action.

Question 39

In general,the longest lag for

A)both fiscal and monetary policy is the time it takes to change policy.
B)both fiscal and monetary policy is the time it takes for policy to affect aggregate demand.
C)monetary policy is the time it takes to change policy,while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)fiscal policy is the time it takes to change policy,while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 40

Studies have shown significant spending changes arise from interest rate changes after

A)a few days.
B)a few weeks.
C)a few months.
D)about a year and a half..

Question 41

A policymaker in favor of stabilizing the economy would be likely to believe

A)recessions are a waste of resources.
B)economies must suffer through the booms and busts of the business cycle.
C)the long policy lags make implementing policy changes in response to recession too risky.
D)policy increases the magnitude of economic fluctuations.

Question 42

Which of the following is an argument against trying to use policy to stabilize the economy?

A)Recessions represent a waste of resources.
B)Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C)"Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D)Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.

Question 43

All of the following are arguments against stabilization policy except

A)Economic forecasting is highly imprecise.
B)Long lags may cause stabilization policies to in fact destabilize the economy.
C)Monetary policy affects aggregate demand by changing interest rates.
D)Fiscal policy must go through a long political process.

Question 44

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output,they could

A)increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
B)increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.
C)decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
D)decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.