Question 1

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 2

-The above table gives the government outlays and tax revenues from 2008 through 2012 for two countries.In 2010 country A had a ________ and country B had a ________.

Accepted Answer

A) budget deficit;budget deficit 
B) budget deficit;budget surplus 
C) balanced budget;budget deficit 
D) budget surplus;budget surplus 
E) budget surplus;budget deficit 
A) budget deficit;budget deficit 
B) budget deficit;budget surplus 
C) balanced budget;budget deficit 
D) budget surplus;budget surplus 
E) budget surplus;budget deficit

Question 3

What are lawmaking lags? What effect do they have on the use of discretionary fiscal policy?

Accepted Answer

Lawmaking lags refer to the fact that be

Question 4

The figure above shows a nation's aggregate demand curve,aggregate supply curve,and potential GDP.
-In the figure above,the ________ gap is one trillion dollars.To close the gap,the government can change expenditure by ________ one trillion dollars.

Accepted Answer

A) recessionary;less than 
B) inflationary;exactly 
C) inflationary;more than 
D) recessionary;more than 
E) recessionary;exactly 
A) recessionary;less than 
B) inflationary;exactly 
C) inflationary;more than 
D) recessionary;more than 
E) recessionary;exactly

Question 5

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

Accepted Answer

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

Question 6

Raising the federal funds rate shifts the aggregate demand curve ________,so that real GDP________ and the price level ________.

Accepted Answer

A) rightward;increases;rises 
B) leftward;decreases;rises 
C) rightward;increases;falls 
D) leftward;increases;rises 
E) leftward;decreases;falls 
A) rightward;increases;rises 
B) leftward;decreases;rises 
C) rightward;increases;falls 
D) leftward;increases;rises 
E) leftward;decreases;falls

Question 7

Suppose the Fed raises the federal funds rate.Put the following changes in order in which they occur,starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:
I.Short-term interest rates rise.
Ii.Long-term interest real interest rate rises.
Iii.Aggregate demand decreases.
Iv.Inflation rate decreases.

Accepted Answer

A) i-ii-iii-iv 
B) ii-i-iii-iv 
C) i-ii-iv-iii 
D) i-iii-ii-iv 
E) ii-i-iv-iii 
A) i-ii-iii-iv 
B) ii-i-iii-iv 
C) i-ii-iv-iii 
D) i-iii-ii-iv 
E) ii-i-iv-iii

Question 8

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Accepted Answer

A) aggregate demand. 
B) the budget deficit. 
C) tax receipts. 
D) aggregate supply. 
E) potential GDP. 
A) aggregate demand. 
B) the budget deficit. 
C) tax receipts. 
D) aggregate supply. 
E) potential GDP.

Question 9

Ignoring any supply-side effects,if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion,then real GDP ________ and the price level ________.

Accepted Answer

A) increases;rises 
B) increases;falls 
C) decreases;rises 
D) decreases;falls 
E) does not change;does not change 
A) increases;rises 
B) increases;falls 
C) decreases;rises 
D) decreases;falls 
E) does not change;does not change

Question 10

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Accepted Answer

A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease 
E) increase;do not change 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease 
E) increase;do not change

Question 11

The balanced budget multiplier is

Accepted Answer

A) equal to zero because taxes and government expenditure are changed to leave the budget balanced. 
B) misnamed because it does not leave the budget balanced. 
C) greater than zero and less than the government expenditure multiplier. 
D) greater than zero and greater than the government expenditure multiplier. 
E) less than zero,that is,it is negative. 
A) equal to zero because taxes and government expenditure are changed to leave the budget balanced. 
B) misnamed because it does not leave the budget balanced. 
C) greater than zero and less than the government expenditure multiplier. 
D) greater than zero and greater than the government expenditure multiplier. 
E) less than zero,that is,it is negative.

Question 12

Which of the following is a problem in pursuing monetary policy?

Accepted Answer

A) The lag between a change in the quantity of money and its effect on economic activity may be long. 
B) Monetary policy must be approved by the Congress. 
C) The Fed must reveal to the public anytime the Fed changes its policy. 
D) The Fed cannot control the federal funds rate. 
E) None of the above answers is correct. 
A) The lag between a change in the quantity of money and its effect on economic activity may be long. 
B) Monetary policy must be approved by the Congress. 
C) The Fed must reveal to the public anytime the Fed changes its policy. 
D) The Fed cannot control the federal funds rate. 
E) None of the above answers is correct.

Question 13

A decrease in the federal funds rate

Accepted Answer

A) increases other short-term interest rates,decreases investment,and decreases aggregate demand. 
B) lowers the exchange rate,increases the supply of loanable funds,and increases aggregate demand. 
C) lowers other sort-term interest rate,raises the real interest rate,and increases aggregate demand. 
D) decreases the supply of loanable funds,raises the real interest rate,and decreases aggregate demand. 
E) decreases the demand for loanable funds,lowers the real interest rate,and decreases aggregate demand. 
A) increases other short-term interest rates,decreases investment,and decreases aggregate demand. 
B) lowers the exchange rate,increases the supply of loanable funds,and increases aggregate demand. 
C) lowers other sort-term interest rate,raises the real interest rate,and increases aggregate demand. 
D) decreases the supply of loanable funds,raises the real interest rate,and decreases aggregate demand. 
E) decreases the demand for loanable funds,lowers the real interest rate,and decreases aggregate demand.

Question 14

When would the Fed want to carry out a monetary policy that decreases aggregate demand?

Accepted Answer

The Fed wants to decrease aggregate dema

Question 15

The FOMC is the

Accepted Answer

A) report the Fed gives to Congress twice a year. 
B) group within the Fed that makes monetary policy. 
C) report that summarizes the economy across Fed districts. 
D) name of the meeting the Fed has with Congress twice a year. 
E) interest rate the Fed most directly influences. 
A) report the Fed gives to Congress twice a year. 
B) group within the Fed that makes monetary policy. 
C) report that summarizes the economy across Fed districts. 
D) name of the meeting the Fed has with Congress twice a year. 
E) interest rate the Fed most directly influences.

Question 16

If a tax cut increases aggregate demand more than aggregate supply,real GDP ________ and the price level ________.

Accepted Answer

A) increases;rises 
B) increases;falls 
C) decreases;rises 
D) decreases;falls 
E) increases;does not change 
A) increases;rises 
B) increases;falls 
C) decreases;rises 
D) decreases;falls 
E) increases;does not change

Question 17

If the Federal Reserve decreases the Federal funds rate,other short-term interest rates ________ and the exchange rate ________.

Accepted Answer

A) fall;falls 
B) do not change;rises 
C) fall;does not change 
D) fall;rises 
E) do not change;falls 
A) fall;falls 
B) do not change;rises 
C) fall;does not change 
D) fall;rises 
E) do not change;falls

Question 18

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve,while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

Accepted Answer

The statement is incorrect.The statement

Question 19

The national debt can only be reduced if

Accepted Answer

A) the federal budget is in deficit. 
B) the federal budget is in surplus. 
C) there are no tax multiplier effects. 
D) the economy has a deflationary gap. 
E) the economy has an inflationary gap. 
A) the federal budget is in deficit. 
B) the federal budget is in surplus. 
C) there are no tax multiplier effects. 
D) the economy has a deflationary gap. 
E) the economy has an inflationary gap.

Question 20

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Accepted Answer

When the Fed raises the federal funds ra

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

-The above table gives the government outlays and tax revenues from 2008 through 2012 for two countries.In 2010 country A had a and country B had a .

What are lawmaking lags? What effect do they have on the use of discretionary fiscal policy?

The figure above shows a nation's aggregate demand curve,aggregate supply curve,and potential GDP. -In the figure above,the gap is one trillion dollars.To close the gap,the government can change expenditure by one trillion dollars.

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

Raising the federal funds rate shifts the aggregate demand curve ,so that real GDP and the price level .

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Ignoring any supply-side effects,if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion,then real GDP and the price level .

The supply-side effects of an income tax cut potential GDP and aggregate supply.

The balanced budget multiplier is

Which of the following is a problem in pursuing monetary policy?

A decrease in the federal funds rate

When would the Fed want to carry out a monetary policy that decreases aggregate demand?

The FOMC is the

If a tax cut increases aggregate demand more than aggregate supply,real GDP and the price level .

If the Federal Reserve decreases the Federal funds rate,other short-term interest rates and the exchange rate .

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve,while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

The national debt can only be reduced if

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Getting Started

The Usand 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

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

-The above table gives the government outlays and tax revenues from 2008 through 2012 for two countries.In 2010 country A had a ________ and country B had a ________.

What are lawmaking lags? What effect do they have on the use of discretionary fiscal policy?

The figure above shows a nation's aggregate demand curve,aggregate supply curve,and potential GDP. -In the figure above,the ________ gap is one trillion dollars.To close the gap,the government can change expenditure by ________ one trillion dollars.

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

Raising the federal funds rate shifts the aggregate demand curve ________,so that real GDP________ and the price level ________.

The government expenditure multiplier is the magnification effect of a change in government expenditure on

Ignoring any supply-side effects,if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion,then real GDP ________ and the price level ________.

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

The balanced budget multiplier is

Which of the following is a problem in pursuing monetary policy?

A decrease in the federal funds rate

When would the Fed want to carry out a monetary policy that decreases aggregate demand?

The FOMC is the

If a tax cut increases aggregate demand more than aggregate supply,real GDP ________ and the price level ________.

If the Federal Reserve decreases the Federal funds rate,other short-term interest rates ________ and the exchange rate ________.

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve,while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

The national debt can only be reduced if

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Getting Started

The Usand 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.

-The above table gives the government outlays and tax revenues from 2008 through 2012 for two countries.In 2010 country A had a and country B had a .

The figure above shows a nation's aggregate demand curve,aggregate supply curve,and potential GDP. -In the figure above,the gap is one trillion dollars.To close the gap,the government can change expenditure by one trillion dollars.

Raising the federal funds rate shifts the aggregate demand curve ,so that real GDP and the price level .

Ignoring any supply-side effects,if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion,then real GDP and the price level .

The supply-side effects of an income tax cut potential GDP and aggregate supply.

If a tax cut increases aggregate demand more than aggregate supply,real GDP and the price level .

If the Federal Reserve decreases the Federal funds rate,other short-term interest rates and the exchange rate .