Log in
Economics
1
answer
0
watching
46
views

The primary argument against active monetary and fiscal policy is that:

A. history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.

B. attempts to stabilize the economy do not constitute a proper role for government in a democratic society.

C. these policies affect the economy with a long lag.

D. these policies affect the economy too quickly and with too much impact.

Watch
1
answer
0
watching
46
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Sonal Bahl
Sonal BahlLv10
18 Mar 2021

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Question 32

  1. Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

    Net exports would decrease and GDP would decrease.

    Net exports would decrease and GDP would be unaffected.

    Net exports would increase and GDP would increase.

    Net exports would increase and consumption would increase.

1 points

Question 33

  1. An increase in U.S. government spending tends to

    increase U.S. interest rates and increase the U.S. capital account surplus.

    increase U.S. interest rates and decrease the U.S. capital account surplus.

    decrease U.S. interest rates and increase the U.S. capital account surplus.

    decrease U.S. interest rates and decrease the U.S. capital account surplus.

1 points

Question 34

  1. A _______ is a system in which the government intervenes extensively in the foreign exchange market to keep the exchange rate within certain bounds.

    dirty float

    floating exchange rate

    fixed exchange rate

    dollarization

1 points

Question 35

  1. Suppose the exchange rate between the euro and the dollar is E0.5 to $1. If a Big Mac costs $3 in the United States and E1.5 in Germany, then the real exchange rate is

    1:1.

    2:1.

    1:2.

    It cannot be determined from this information.

1 points

Question 36

  1. Which of the following prevent the purchasing power parity theorem from holding perfectly?

    transportation costs

    goods that cannot be shipped

    tariffs and quotas

    Each of these answers is correct.

1 points

Question 37

  1. Fiscal policy is more effective in affecting economic activity if

    many resources are unemployed.

    there is a real shock instead of an aggregate demand shock.

    the economy returns to the long-run condition almost immediately.

    there is a long implementation lag.

1 points

Question 38

  1. In a typical year, changes in government spending compared to overall spending are relatively

    small.

    large.

    unpredictable.

    well-timed.

1 points

Question 39

  1. Which statement is TRUE about the difference between monetary and fiscal policy?

    Fiscal policy can quickly adjust to changes in aggregate demand.

    Fiscal policy can have a more direct impact.

    Monetary policy is subject to many long lags.

    Monetary policy can affect the economy regardless of the actions banks take.

1 points

Question 40

  1. Fiscal policies that help an economy in a recession without additional actions by policy makers are called

    consumption smoothers.

    Ricardian equalizers.

    automatic stabilizers.

    Each of these answers is correct.

1 points

Question 41

  1. The U.S. individual income tax system can best be described as a

    regressive tax system.

    flat tax system.

    zero tax system.

    progressive tax system.

1 points

Question 42

  1. What demographic change in the United States will cause government spending to increase in the next 50 years?

    The population over 65 will grow.

    The population will be younger.

    Women will have fewer children.

    Immigration will increase.

1 points

Question 43

  1. What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future?

    defense

    environmental protection

    education

    health care

1 points

Question 47

  1. The Fed could have popped the bubble of the housing boom in the 2000s by

    lending directly to homeowners.

    regulating the stock markets more.

    reducing the growth rate of the money supply.

    doing nothing.

1 points

Question 48

  1. Which of the following would be an example of running monetary policy by rules?

    A 5 percent increase in money supply automatically leads to a 2 percent increase in real GDP.

    An increase in money supply automatically leads to an increase in inflation.

    The Fed will increase money growth to different levels, depending on the severity of the recession.

    A 1 percent drop in real GDP will automatically elicit a 2 percent increase in money supply.

    Question 50

    Moral hazard occurs when

    the failure of one financial institution can bring down other institutions as well.

    financial institutions take on too much risk because they are insured.

    financial institutions become insolvent because they issued too many loans.

    there are more short-term liabilities than short-term assets.

    Which of the following is NOT a transmission mechanism?

    reductions in the money supply

    intertemporal substitution

    uncertainty

    sticky wages and prices

    Question 56

    For a given increase in government spending growth, intertemporal substitution is more widespread when

    the impact of AD growth on both inflation and real GDP growth is stronger.

    the impact of AD growth on both inflation and real GDP growth is weaker.

    the impact of AD growth on inflation is stronger and the impact of the AD growth on real GDP growth is weaker.

    the impact of AD growth on inflation is weaker and the impact of AD growth on real GDP growth is stronger.

    Stalin:

    instituted democratic reforms, leading to widespread prosperity.

    took government control of the farms in Ukraine, leading to the starvation of millions of people.

    increased the provision of public goods, which had a positive effect on lowering the unemployment rate.

    tried unsuccessfully to expand voting rights in 1924 Russia.

    1 points

    Question 60

    1 points

    Question 59

    If voters care about two issues such as taxes and war, then politicians:

    will form a stable policy on these issues.

    can pose a policy that will never lose against another policy.

    must assume that there is no median voter.

    may never converge on a stable outcome.

    1 points

    Question 58

    Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is true?

    Policy A will not become law because it hurts more people than it helps.

    Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people.

    Policy A is likely to be supported by politicians even though it makes society worse off.

    Since Policy A negatively affects many people, and so rational ignorance will not be a problem.

    1 points

    Question 57

    Data for the United States show that the incumbent party tends to win the election if:
    I. personal disposable income is growing.
    II. the inflation rate is low.
    III. the political party has not been in power for too many continuous terms.

    I only

    I and II only

    I and III only

    I, II, and III

    1 points

    Question 53

    1 points

    Question 52

    What is the purpose of the Fed's structure?

    to give the President of the United States as many tools as possible to regulate the economy

    to make sure all states are given equal access to monetary policy decisions

    to keep the private sector out of the monetary policy making arena

    to keep the power of the Fed dispersed

    1 points

    Question 51

    An increase in money growth will cause inflation to increase in

    the short run only.

    the long run only.

    both the short run and the long run.

    neither the short run nor the long run.

MBA502, Economics for Business

Apply and Discover 7.2

You are responsible for economic policymaking in your country. Your desire is to eliminate inflation, keeping prices absolutely stable at P = 100, no matter what happens to output. Currently, the economy is in equilibrium at Q = 3200 (where Q = potential GDP) and P = 100. You can use monetary and fiscal policies to affect aggregate demand but you cannot affect aggregate supply in the short run. How would you respond to the following scenarios?

Explain and illustrate how each of these events would affect aggregate demand, aggregate supply, and prices, then explain how you would respond with economic policies.

1. A surprise increase in investment spending

In the short run, when investment spending increases, it results in an increase in Aggregate Demand (AD), which in turn pushes up both GPD and the price index.

To counterbalance this development, government might pursue contractionary fiscal policy by increasing taxes (to reduce consumption) or decreasing its own investment and spending so that the AD curve shifts back to its original position. Alternatively, the government can pursue contractionary monetary policy by reducing money supply and increasing interest rate to discourage economic activity.

2. Catastrophic floods that cause a sharp food price increase

In this case, sharp food shortages and consequent price increases cause a shock-type adjustment of the aggregate supply curve (it shift up and to the left). The result is a lower GDP and a higher price level.

The government cannot do anything to adjust AS in the short run. However, if the goal is to maintain the price level constant, the government can decide to do something to decrease the aggregate demand to force prices to come down, though it will be accompanies by another contraction in GDP and so it would not be a smart thing to do.

To cause AD to decrease, the government, similar to example above, can pursue fiscal policy (increase taxes, decrease spending) or monetary policy (reduce supply of money to the economy and thus increase interest rates).

3. A productivity decline that reduces potential output

In this case, AS shifts to the left, as was the case in example 2. As a result, price levels go up, as the same amount of money is chasing the reduced amount of goods and services, and GDP declines.

Government remedies here would be centered about causing AD to decrease through contractionary fiscal (higher taxes, lower spending) or monetary (reduce money supply and increase interest rates) policy. Again, this decision reduces inflation but at expense of GDP, as real output shrinks further.

4. A deep depression in East Asia that causes a sharp decrease in net exports to the United States

A decrease in exports of goods to from the United States to Asia will mean that the aggregate demand (which includes net exports

Show transcribed image text

1. The primary tool used by supply-side economists to eliminate macroeconomic problems is

A. the discount rate.

B. corporate tax rates.

C. government spending.

D. open market operations.

E. the reserve requirement.

2. When the Federal Reserve System buys government securities on the open market,

A. the money supply will decrease.

B. excess reserves at commercial banks will decrease.

C. excess reserves at commercial banks will increase.

D. interest rates will increase

3. One of the advantages of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers

A. has a greater multiplier effect than discretionary policy.

B. is not subject to the time lag problems of discretionary policy.

C. does not produce a deficit during recessions as a discretionary policy does.

D. makes the actual budget a better reflection of the condition of the economy than the full-employment budget.

4. "I have promised to do everything in my power to reduce the federal deficit. That means reducing federal expenditures and, if necessary, increasing taxes. Under present conditions of full employment and steady prices, we can afford to bear the burden of this debt (i.e., pay off the debt) now instead of passing it on to our children and grandchildren."

If the policies of the Senator quoted above were adopted, what effects would be expected while these policies were being implemented?

A. higher inflation

B. increases imports

C. higher rates of economic growth

D. increased unemployment and idle capacity

5. An inflationary gap can be reduced or completely closed by

A. decreasing taxes while leaving government spending on goods and services unchanged.

B. decreasing government spending on goods and services while leaving taxes unchanged.

C. increasing government spending on goods and services while leaving taxes unchanged.

D. increasing both government spending on goods and services and taxes by the same amount.

6. Compared to fiscal policy, an advantage of monetary policy is its

A. greater flexibility.

B. highly selective impact on segments of the economy.

C. ability to eliminate cost-push inflation.

D. need for approval by Congress.

E. need for approval by the President.

7. An increase in government spending on goods and services which causes a budget deficit to exist

A. is always inflationary.

B. is more inflationary than equal increases in private spending.

C. is usually not inflationary when the economy is operating at its full-employment level of output.

D. will not necessarily cause serious inflation as long as there are unemployed resources in the economy.

8. Some analysts believe the tax cuts enacted during the President H.W. Bush administration represented a supply-side economic policy rather than a Keynesian fiscal policy because

A. the tax cuts were accompanied by decreases in interest rates.

B. the tax cuts were accompanied by increases in government spending.

C. the tax cuts were primarily aimed at upper-income groups and businesses.

D. the tax cuts were primarily aimed at middle income and lower-income groups.

9. When the federal government is stabilizing the economy by increasing taxes, monetary authorities should

A. take actions to decrease interest rates.

B. increase the supply of money.

C. buy government securities in the open market.

D. follow an expansionary money policy.

E. follow a contractionary money policy.

10. Suppose a commercial bank has demand deposits (checking accounts) of $400,000, actual reserves of $170,000, and a reserve requirement of 20%. This single commercial bank can lend a maximum of ______ and the banking system can increase loans by a maximum of ______

A. $90,000 and $450,000.
B. $90,000 and $360,000.
C. $90,000 and $170,000.
D. $170,000 and $450,000.

E. both can lend an unlimited amount.

11. Which of the following would most likely result if the federal government increased its spending without changing tax revenues during a period of full employment?

A. inflation

B. a recession

C. lower interest rates

D. a larger net exports deficit

12. Fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, and invest would be characterized in aggregate demand - aggregate supply framework primarily a shift

A. left in the aggregate demand curve.

B. left in the aggregate supply curve.

C. right in the aggregate supply curve.

D. no shift in either the aggregate demand curve or the aggregate supply curve.

13. Which of the following will result in the greatest increase in aggregate expenditures/demand?

A. A $100 decrease in personal income taxes

B. A $100 increase in personal income taxes

C. A $100 increase in government expenditures

D. A $100 increase in government expenditures which is accompanied by a $100 increase in personal income taxes

E. Both A and C will have the same effect on aggregate expenditures

14. You are given the following information about aggregate demand for an economy: (1)consumption = $600 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $720 billion, then what combination of actions would be most consistent to achieve full employment and stable prices?

A. an increase in government spending and taxes

B. decrease government spending and taxes

C. decrease government spending and increase taxes

D. increase government spending and decrease taxes

15. Advocates of fiscal policy agree that discretionary fiscal policy will stabilize the business cycle most when the federal government

A. continuously incurs budget deficits.

B. continuously runs budget surpluses.

C. balances its budget every year.

D. incurs budget deficits during recessions and budget surpluses during demand-pull inflations.

E. incurs budget surpluses during recessions and budget deficits during demand-pull inflations.

16. Discretionary fiscal policy that increases the government budget deficit has the same effect on equilibrium as

A. an increase in personal saving.

B. an increase in business investment.

C. a decrease in government spending.

D. a decrease in personal consumption expenditures

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in