Question 1

The Federal Reserve

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 2

Part of the lag in monetary policy effects is due to

Accepted Answer

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.E) None of the above
F) A) and B)

Question 3

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

Accepted Answer

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.E) All of the above
F) C) and D)

Question 4

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?

Accepted Answer

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 cutE) All of the above
F) None of the above

Question 5

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

A)  increasing government spending.
B)  expanding the money supply.
C)  lowering taxes.
D)  the Fed sell government bonds.E) None of the above
F) A) and B)

Question 6

In general,the longest lag for

Accepted Answer

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.E) B) and D)
F) All of the above

Question 7

The principal lag for monetary policy

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 8

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 9

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

Accepted Answer

A)  increase taxes,increase government spending
B)  increase taxes,decrease government spending
C)  decrease taxes,increase government spending
D)  decrease taxes,decrease government spendingE) None of the above
F) B) and C)

Question 10

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

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.E) B) and C)
F) A) and B)

Question 11

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

Accepted Answer

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.E) B) and D)
F) A) and C)

Question 12

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

Accepted Answer

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 rateE) None of the above
F) B) and C)

Question 13

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

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

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

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

Question 15

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

Accepted Answer

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.E) A) and D)
F) None of the above

Question 16

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

Accepted Answer

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 taxesE) A) and D)
F) A) and B)

Question 17

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

Accepted Answer

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 spendingE) C) and D)
F) None of the above

Question 18

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 19

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

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.E) B) and C)
F) All of the above

Question 20

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

Accepted Answer

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

Exam 23: Six Debates Over Macroeconomic Policy: Should Monetary and Fiscal Policymakers Try to Stabilize the Economy

In general,the longest lag for

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

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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

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

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

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

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

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Opponents of using policy to stabilize the economy generally believe that

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

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

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The principal lag for monetary policy

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

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The Federal Reserve

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

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

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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?

Correct AnswerverifiedShow Answer

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

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Part of the lag in monetary policy effects is due to

Correct AnswerverifiedShow Answer

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

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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

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