Question 1

The Fed raises the federal funds rate. Which of the following changes takes the longest time before it occurs?

Accepted Answer

A) Short-term interest rates rise. 
B) Exchange rate rises. 
C) Quantity of money decreases. 
D) Supply of loanable funds decreases. 
E) Aggregate demand decreases. 
A) Short-term interest rates rise. 
B) Exchange rate rises. 
C) Quantity of money decreases. 
D) Supply of loanable funds decreases. 
E) Aggregate demand decreases.

Question 2

If there is an inflationary gap, what is the proper monetary policy to restore price stability?
 What actions can the Fed undertake to restore price stability?

Accepted Answer

An inflationary gap occurs when real GDP

Question 3

When the economy is in a recession, the Fed can ________ the federal funds rate, which ________ aggregate demand and ________ real GDP.

Accepted Answer

A) lower; increases; decreases 
B) raise; decreases; increases 
C) lower; increases; increases 
D) raise; increases; decreases 
E) lower; decreases; decreases 
A) lower; increases; decreases 
B) raise; decreases; increases 
C) lower; increases; increases 
D) raise; increases; decreases 
E) lower; decreases; decreases

Question 4

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

Accepted Answer

A) greater than 
B) equal to 
C) less than 
D) not comparable to 
E) greater than for expansionary policy and less than for contractionary policy 
A) greater than 
B) equal to 
C) less than 
D) not comparable to 
E) greater than for expansionary policy and less than for contractionary policy

Question 5

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

Accepted Answer

Three limitations of using discretionary

Question 6

If the Fed lowers the federal funds rate, which of the following occurs?

Accepted Answer

A) Investment increases. 
B) Consumption expenditure decreases. 
C) The price of the dollar on the foreign exchange market increases. 
D) Net exports decrease. 
E) Government expenditure on goods and services increases. 
A) Investment increases. 
B) Consumption expenditure decreases. 
C) The price of the dollar on the foreign exchange market increases. 
D) Net exports decrease. 
E) Government expenditure on goods and services increases.

Question 7

If the Federal Reserve lowers the Federal funds rate,

Accepted Answer

A) other short-term interest rates fall. 
B) net exports decreases. 
C) other short-term interest rates rise. 
D) the price level falls. 
E) Both answers A and C are correct. 
A) other short-term interest rates fall. 
B) net exports decreases. 
C) other short-term interest rates rise. 
D) the price level falls. 
E) Both answers A and C are correct.

Question 8

President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply side?
I. decrease the quantity of money
Ii. lower taxes
Iii. lower the interest rate.

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) i, ii, and iii 
A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) i, ii, and iii

Question 9

Because investment, consumption expenditure, and net exports are interest-sensitive components of expenditure, a ________ in the federal funds rate brings ________ in ________.

Accepted Answer

A) fall; a decrease; aggregate demand 
B) fall; an increase; aggregate demand 
C) rise; an increase; aggregate supply 
D) rise; an increase; aggregate demand 
E) fall; a decrease; aggregate supply 
A) fall; a decrease; aggregate demand 
B) fall; an increase; aggregate demand 
C) rise; an increase; aggregate supply 
D) rise; an increase; aggregate demand 
E) fall; a decrease; aggregate supply

Question 10

If the Fed is concerned about a possible recession, it ________ the federal funds rate, which ________ the quantity of money and ________ the amount of bank loans.

Accepted Answer

A) raises; decreases; decreases 
B) lowers; decreases; decreases 
C) lowers; increases; decreases 
D) raises; increases; increases 
E) lowers; increases; increases 
A) raises; decreases; decreases 
B) lowers; decreases; decreases 
C) lowers; increases; decreases 
D) raises; increases; increases 
E) lowers; increases; increases

Question 11

If the Fed's policies aim to increase aggregate demand, the Fed must fear

Accepted Answer

A) inflation. 
B) recession. 
C) stagflation. 
D) a supply shock that decreases potential GDP. 
E) a supply shock that increases aggregate supply. 
A) inflation. 
B) recession. 
C) stagflation. 
D) a supply shock that decreases potential GDP. 
E) a supply shock that increases aggregate supply.

Question 12

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

Accepted Answer

A) weakens the incentive to work. 
B) decreases potential GDP. 
C) increases potential GDP because people work more to pay the higher taxes. 
D) Both answers A and B are correct. 
E) None of the above is correct. 
A) weakens the incentive to work. 
B) decreases potential GDP. 
C) increases potential GDP because people work more to pay the higher taxes. 
D) Both answers A and B are correct. 
E) None of the above is correct.

Question 13

What are automatic stabilizers?
 How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

Accepted Answer

Automatic stabilizers are features of fi

Question 14

When government outlays exceed tax revenues, does the government have a budget deficit or surplus?

Accepted Answer

When government outl

Question 15

When the government's expenditures exceed its tax revenue, the budget

Accepted Answer

A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is increasing. 
C) has a surplus and the national debt is increasing. 
D) has a deficit and the national debt is decreasing. 
E) None of the above because by law the government's expenditures cannot exceed its tax revenue. 
A) has a deficit and the national debt is increasing. 
B) is balanced and the national debt is increasing. 
C) has a surplus and the national debt is increasing. 
D) has a deficit and the national debt is decreasing. 
E) None of the above because by law the government's expenditures cannot exceed its tax revenue.

Question 16

The federal budget

Accepted Answer

A) is required to balance by law. 
B) can have a surplus but not a deficit. 
C) can have a deficit but not a surplus. 
D) can have a deficit or a surplus but cannot be balanced. 
E) can have a deficit, a surplus, or a balance. 
A) is required to balance by law. 
B) can have a surplus but not a deficit. 
C) can have a deficit but not a surplus. 
D) can have a deficit or a surplus but cannot be balanced. 
E) can have a deficit, a surplus, or a balance.

Question 17

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

Accepted Answer

A) tax; expenditure; does not change 
B) expenditure; tax; does not change 
C) expenditure; tax; decreases 
D) expenditure; tax; increases 
E) tax; expenditure; decreases 
A) tax; expenditure; does not change 
B) expenditure; tax; does not change 
C) expenditure; tax; decreases 
D) expenditure; tax; increases 
E) tax; expenditure; decreases

Question 18

20.3 Chapter Figures
   
The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.
-In the figure above, the ________ gap is equal to ________.

Accepted Answer

A) recessionary; $1 trillion 
B) inflationary; $1 trillion 
C) recessionary; $12 trillion 
D) inflationary; $12 trillion 
E) recessionary; $13 trillion 
A) recessionary; $1 trillion 
B) inflationary; $1 trillion 
C) recessionary; $12 trillion 
D) inflationary; $12 trillion 
E) recessionary; $13 trillion

Question 19

What are law-making lags?
 What effect do they have on the use of discretionary fiscal policy?

Accepted Answer

Law-making lags refer to the fact that b

Question 20

One problem with the ripple effect from the Fed's monetary policy is

Accepted Answer

A) the fact that the monetary policy transmission process is long and drawn out. 
B) that changing the Federal funds target rate seldom has an effect on the markets for reserves and loanable funds. 
C) that the Fed's policy sometimes has a large impact on potential GDP as well as its usual impact on aggregate demand. 
D) the tight relationship that the Federal funds rate has to aggregate spending. 
E) the frequent misalignment of the spread between the Federal funds rate and the Federal funds rate target. 
A) the fact that the monetary policy transmission process is long and drawn out. 
B) that changing the Federal funds target rate seldom has an effect on the markets for reserves and loanable funds. 
C) that the Fed's policy sometimes has a large impact on potential GDP as well as its usual impact on aggregate demand. 
D) the tight relationship that the Federal funds rate has to aggregate spending. 
E) the frequent misalignment of the spread between the Federal funds rate and the Federal funds rate target.

The Fed raises the federal funds rate. Which of the following changes takes the longest time before it occurs?

If there is an inflationary gap, what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

When the economy is in a recession, the Fed can the federal funds rate, which aggregate demand and real GDP.

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

If the Fed lowers the federal funds rate, which of the following occurs?

If the Federal Reserve lowers the Federal funds rate,

President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply side? I. decrease the quantity of money Ii. lower taxes Iii. lower the interest rate.

Because investment, consumption expenditure, and net exports are interest-sensitive components of expenditure, a in the federal funds rate brings in .

If the Fed is concerned about a possible recession, it the federal funds rate, which the quantity of money and the amount of bank loans.

If the Fed's policies aim to increase aggregate demand, the Fed must fear

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

What are automatic stabilizers? How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

When government outlays exceed tax revenues, does the government have a budget deficit or surplus?

When the government's expenditures exceed its tax revenue, the budget

The federal budget

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

20.3 Chapter Figures The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is equal to .

What are law-making lags? What effect do they have on the use of discretionary fiscal policy?

One problem with the ripple effect from the Fed's monetary policy is

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

Exam 20: Fiscal Policy and Monetary Policy

The Fed raises the federal funds rate. Which of the following changes takes the longest time before it occurs?

If there is an inflationary gap, what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

When the economy is in a recession, the Fed can ________ the federal funds rate, which ________ aggregate demand and ________ real GDP.

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

If the Fed lowers the federal funds rate, which of the following occurs?

If the Federal Reserve lowers the Federal funds rate,

President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply side? I. decrease the quantity of money Ii. lower taxes Iii. lower the interest rate.

Because investment, consumption expenditure, and net exports are interest-sensitive components of expenditure, a ________ in the federal funds rate brings ________ in ________.

If the Fed is concerned about a possible recession, it ________ the federal funds rate, which ________ the quantity of money and ________ the amount of bank loans.

If the Fed's policies aim to increase aggregate demand, the Fed must fear

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

What are automatic stabilizers? How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

When government outlays exceed tax revenues, does the government have a budget deficit or surplus?

When the government's expenditures exceed its tax revenue, the budget

The federal budget

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

20.3 Chapter Figures The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is equal to ________.

What are law-making lags? What effect do they have on the use of discretionary fiscal policy?

One problem with the ripple effect from the Fed's monetary policy is

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Filters

When the economy is in a recession, the Fed can the federal funds rate, which aggregate demand and real GDP.

Because investment, consumption expenditure, and net exports are interest-sensitive components of expenditure, a in the federal funds rate brings in .

If the Fed is concerned about a possible recession, it the federal funds rate, which the quantity of money and the amount of bank loans.

The balanced budget multiplier is based on the point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes aggregate demand.

20.3 Chapter Figures The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the gap is equal to .