Question 1

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

Accepted Answer

The answer of The Kennedy tax cut of 1964 included...

Question 2

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

Accepted Answer

A decline in net exports would cause a decrease in aggregate demand, leading to a potential decrease in output. To stabilize output, the Fed would want to increase aggregate demand. One way to do this is by buying bonds, which would increase the money supply and lower interest rates. Lower interest rates would encourage borrowing and spending, thus increasing aggregate demand and potentially stabilizing output.

Question 3

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?
A)increase taxes
B)increase the money supply
C)increase government expenditures
D)All of the above are correct.

Accepted Answer

The answer of Which of the following policy alternatives would...

Question 4

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received
A)was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive.
B)was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile.
C)came from economists who had studied Keynes's ideas when those ideas were only a few years old.
D)came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.

Accepted Answer

Keynes's ideas had been widely disseminated and studied by economists by 1961, so option D is incorrect. Option B is also incorrect because Keynes did not teach that all attempts to stabilize the economy were futile; rather, he believed in government intervention in times of economic hardship. Option A is incorrect because Keynes did not believe that tax cuts were always counterproductive; rather, he believed that they could be an effective tool for stimulating aggregate demand during times of economic downturn, as was the case in the early 1960s when Kennedy proposed his tax cuts. Therefore, the correct answer is C, which suggests that Kennedy's economists had studied Keynesian economics when it was relatively new.

Question 5

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?
A)increase taxes or increase the money supply
B)increase taxes or decrease the money supply
C)decrease taxes or increase the money supply
D)decrease taxes or decrease the money supply

Accepted Answer

A large decrease in U.S. net exports would result in decreased demand for U.S. goods and services, leading to decreased output and potentially a recession. To stabilize output, expansionary fiscal and monetary policies could be implemented. Decreasing taxes and increasing the money supply would increase aggregate demand and stimulate economic growth, helping to stabilize output.

Question 6

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

Accepted Answer

The answer of The price of imported oil rises. If...

Question 7

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by
A)increasing the money supply, which raises interest rates.
B)increasing the money supply, which lowers interest rates.
C)decreasing the money supply, which raises interest rates.
D)decreasing the money supply, which lowers interest rates.

Accepted Answer

If businesses and consumers become pessimistic, it can lead to a decrease in spending and a slowdown in economic activity. In order to counteract this, the Federal Reserve can increase the money supply, which lowers interest rates and makes it easier for consumers and businesses to borrow money and spend. This can help boost economic activity and prevent a significant decrease in the price level and real GDP. Therefore, increasing the money supply, which lowers interest rates would be the best choice in this scenario.

Question 8

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?
A)repeal an investment tax credit or increase the money supply
B)repeal an investment tax credit or decrease the money supply
C)institute an investment tax credit or increase the money supply
D)institute an investment tax credit or decrease the money supply

Accepted Answer

The answer of Suppose aggregate demand shifts to the left...

Question 9

Suppose households attempt to increase their money holdings. To stabilize output by countering this increase in money demand, the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Accepted Answer

If households attempt to increase their money holdings, this means that they are demanding more money, which can potentially lead to a decrease in spending and a decrease in output. To stabilize output, the Federal Reserve should counteract this increase in money demand by increasing the money supply. This can be done through various monetary policy tools, such as lowering interest rates or buying government securities. By increasing the money supply, the Federal Reserve can encourage more spending and investment, which can help stabilize output.

Question 10

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could
A)increase the money supply, which will reduce interest rates.
B)decrease the money supply, which will reduce interest rates.
C)increase the money supply, which will increase interest rates.
D)decrease the money supply, which will increase interest rates.

Accepted Answer

To stabilize output in the face of increased net exports, the Fed might aim to counteract the inflationary pressure by decreasing the money supply, which would lead to higher interest rates, thereby cooling down the economy.

Question 11

Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Accepted Answer

The Federal Reserve would increase the money supply to counter the negative effects of rising interest rates. This can help boost economic activity and job growth, mitigating the negative impact of higher interest rates. This is typically done through actions such as lowering the federal funds rate or engaging in open market operations to increase the supply of money in circulation. Increasing government spending or decreasing spending may not necessarily address the root cause of the problem and can have its own set of economic consequences. Decreasing the money supply would likely exacerbate the negative effects of rising interest rates.

Question 12

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could
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.

Accepted Answer

The answer of Suppose that businesses and consumers become much...

Question 13

Monetary policy
A)can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
C)cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.

Accepted Answer

Monetary policy can be implemented quickly, but its impact on aggregate demand may take some time to occur. This is due to the time lag between when the policy is implemented and when individuals and firms adjust their spending and investment decisions in response to changes in interest rates or money supply. The lag can vary depending on the specific circumstances and the transmission channels through which monetary policy affects the economy. Therefore, it is important to consider the timing and magnitude of the impact when designing and implementing monetary policy.

Question 14

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Accepted Answer

The answer of Suppose households attempt to decrease their money...

Question 15

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

Accepted Answer

Advocating for an active stabilization policy during severe unemployment would require an increase in government expenditures, such as increased infrastructure spending or job creation programs, to stimulate the economy and create jobs. A decrease in the money supply or an increase in taxes would have the opposite effect and would not be effective in combating unemployment.

Question 16

The Kennedy tax cut of 1964 was
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.

Accepted Answer

The answer of The Kennedy tax cut of 1964 was
A)successful...

Question 17

Suppose there is a tax increase. To stabilize output, the Federal Reserve will
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Accepted Answer

When there is a tax increase, it leads to a decrease in households' disposable income, causing a decrease in demand, and ultimately leading to a decrease in output. To stabilize output, the Federal Reserve can increase the money supply, which can help increase demand and offset the decrease in output caused by the tax increase.

Question 18

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

Accepted Answer

The answer of A reduction in U.S net exports would...

Question 19

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?
A)increase taxes
B)increase government expenditures
C)increase the money supply
D)All of the above are correct.

Accepted Answer

The answer of Which of the following policies would Keynes's...

Question 20

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Accepted Answer

The answer of Suppose there is an increase in government...

Quiz 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

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

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

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

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

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

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

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

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could

Monetary policy

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

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?

The Kennedy tax cut of 1964 was

Suppose there is a tax increase. To stabilize output, the Federal Reserve will

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

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would