Question 1

An example of an automatic stabilizer is

Accepted Answer

A) unemployment benefits. 
B) a lowering of interest rates by the Fed. 
C) a decrease in money demand. 
D) a decrease in tax rates in response to a recession.

Question 2

The Kennedy tax cut of 1964 was

Accepted Answer

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.

Question 3

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

Accepted Answer

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

Question 4

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A) president George W.Bush 
B) president John F.Kennedy 
C) economist John Maynard Keynes 
D) former chairman of the Federal Reserve System William McChesney Martin

Question 5

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

Accepted Answer

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

Question 6

According to the IGM poll,what percentage of economists polled agreed that the unemployment rate at the end of 2010 was lower with ARRA than without?

Accepted Answer

A) ​97% 
B) ​75% 
C) ​19% 
D) ​3%

Question 7

The G20 countries introduced stimulus packages that averaged ---- of GDP in 2009 and ---- in 2010.

Accepted Answer

A) ​2%;1.6% 
B) ​1.6%;2% 
C) ​3%;2% 
D) ​2%;3%

Question 8

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A) smaller in closed economies than in open economies. 
B) larger in closed economies than in open economies. 
C) smaller in capitalist economies than in socialist economies. 
D) larger in capitalist economies than in socialist economies.

Question 9

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

Accepted Answer

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.

Question 10

If it were not for the automatic stabilizers in the U.S.economy,

Accepted Answer

A) the Federal Reserve would have less reason than it has now to monitor stock prices. 
B) it would be more desirable than it is now for the Federal Reserve to target an interest rate. 
C) a strict balanced-budget rule would be more desirable than it is now. 
D) output and employment would probably be more volatile than they are now.

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

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.

Question 13

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

Accepted Answer

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

Question 14

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A) contribute to a more stable level of output. 
B) mitigate the crowding-out effect. 
C) eliminate the economy's automatic stabilizers. 
D) All of the above are correct.

Question 15

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

Accepted Answer

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.

Question 16

When the Fed lowers the growth rate of the money supply,it must take into account

Accepted Answer

A) only the short-run effect on production. 
B) only the short-run effects on inflation and production. 
C) only the long-run effect on inflation. 
D) the long-run effect on inflation as well as the short-run effect on production.

Question 17

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A) the fact that business firms make investment plans far in advance. 
B) the political system of checks and balances that slows down the process of determining monetary policy. 
C) the time it takes for changes in government spending to affect the interest rate. 
D) All of the above are correct.

Question 18

During recessions,taxes tend to

Accepted Answer

A) rise and thereby increase aggregate demand. 
B) rise and thereby decrease aggregate demand. 
C) fall and thereby increase aggregate demand. 
D) fall and thereby decrease aggregate demand.

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?

Accepted Answer

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

Question 20

Suppose foreigners find U.S.goods and services more desirable for some reason other than a change in the exchange rate.Which policies could be used to offset the resulting change in output?

Accepted Answer

A) an increase in the money supply and an increase in government purchases. 
B) an increase in the money supply and a decrease in government purchases. 
C) a decrease in the money supply and an increase in government purchases. 
D) a decrease in the money supply and a decrease in government purchases.

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: Using Policy to Stabilize the Economy

An example of an automatic stabilizer is

The Kennedy tax cut of 1964 was

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

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

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

According to the IGM poll,what percentage of economists polled agreed that the unemployment rate at the end of 2010 was lower with ARRA than without?

The G20 countries introduced stimulus packages that averaged ---- of GDP in 2009 and ---- in 2010.

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

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

If it were not for the automatic stabilizers in the U.S.economy,

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

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

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

It is likely that a constitutional amendment that required the government always to run a balanced budget would

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

When the Fed lowers the growth rate of the money supply,it must take into account

The lag problem associated with monetary policy is due mostly to

During recessions,taxes tend to

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 foreigners find U.S.goods and services more desirable for some reason other than a change in the exchange rate.Which policies could be used to offset the resulting change in output?