chapter 11, 12, 13, 14 econ

If an economy were experiencing a high rate of unemployment as the result of weal aggregate demand, a Keynesian economist would be most likely to recommend

A reduction in taxes, without any offsetting reduction in government expenditures.

Suppose an economy's full employment output is at the level Q1, and the economy's current aggregate demand is represented by AD2. If the government swiftly implements contractionary fiscal policy that immediately shifts the economy's aggregate demand would be most closely represented by

AD3

When Keynesian equilibrium is present,

Aggregate demand for goods and services will equal the current rate of output.

When crowding out occurs in an economy, it can reduce expenditures for

Both consumer purchases and business investments.

Which of the following would a Keynesian economist be most likely to stress?

Businesses will not produce goods and services if they do not think people will buy them.

Which of the following would be an example of contractionary fiscal policy?

Congress increases the corporate tax rate by 3 percent.

Fiscal policy is sometimes initiated on the advice of the

Council of Economic Advisers.

When the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to be

Expansionary.

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

It is difficult to properly time discretionary changes in fiscal policy.

If debit cards become more widely used by consumers and businesses, which of the following is most likely to happen?

Less money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks unless the Fed takes offsetting actions.

Rather than seeking to balance the budget, Keynesian economists argue that the government's tax and spending policies should be determined by the

Level of aggregate demand required to achieve full employment of resources.

What restricts the Fed's ability to write checks and purchase U.S. securities?

Nothing; the Fed can create money simply by writing a check on itself.

Contractionary fiscal policy tends to _________ consumption because it may reduce ________

Reduce; disposable income.

Why did the monetary base increase rapidly during the economic crisis of 2008?

The Fed increased both its purchase of assets and quantity of loans extended.

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

The primary effects of the policy change will not be felt for 6 to 15 months into the future.

Which of the following is an important insight of Keynesian analysis?

When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment.

The multiplier principle indicates that if business decision makers become more optimistic about the future and, as a result, increase their investment expenditures by $82 billion, real GDP

Will increase by more than $82 billion if the economy was initially operating well below capacity.

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

a decrease in the real interest rate

The crowding-out effect suggests that

a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit.

If government finances fiscal policy through additional borrowing, it could affect the loanable funds market by causing

an increase in the demand and an increase in the quantity supplied for loanable funds.

The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases in prices will

cause firms to expand output since the higher product prices will improve profitability.

The set of fiscal policies that would be most contractionary would be a(n)

decrease in government purchases and an increase in taxes.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will _____ ______ investment spending.

decrease; increase

Monetary policy affects the economy _____.

directly through changes in government spending

Crowding out may occur when fiscal policy involves

either increases in government purchases or tax cuts.

An individual who is employed part time but is looking for a full-time job is classified as

employed.

Monetarists would likely argue that the severe recession of 2007-2009 was primarily caused by

excessive money supply creating a bubble in some sectors of the economy.

A shift to a more expansionary monetary policy will Group of answer choices

exert a stabilizing impact on the economy if the effects of the policy are felt during an economic downturn.

If the U.S Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

expansionary fiscal policy.

Persistently expansionary monetary policy that stimulates aggregate demand and leads to inflation will

fail to increase real output once decision makers fully anticipate the inflation.

Between 1986 and 2010, the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981. Compared to the earlier time period, in recent years the share of personal income taxes paid by high income taxpayers

has been higher.

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example, a decade) leads to

high rates of inflation

If the economy is currently in equilibrium at output level Q2, but full-employment output is at level Q1, which of the following fiscal policy actions would be the most effective at bringing the economy back to its full-employment output level

increase taxes

Suppose that the demand for money increases as people anticipate upcoming economic problems. To offset this increase in money demand, the Fed should ______ the money supply, which would put ______ pressure on nominal interest rates. Group of answer choices

increase; downward

The supply-side effects of a reduction in taxes are the result of

increased attractiveness of productive activity relative to leisure and tax avoidance.

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

increased by $4,000

Monetary policy has no _____. Group of answer choices

legislative lag

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

lower real interest rates, raise prices, and increase real GDP.

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

medium of exchange

The highest valued alternative that must be given up in order to choose an option is called

opportunity cost.

Within the Keynesian model, if the output of an economy is less than the full-employment level, then

output will tend to remain below full-employment capacity unless aggregate expenditure increase.

One of the potential upsides of contractionary fiscal policy is a reduction in

payments on the national debt.

Suppose the loanable funds market is initially in equilibrium at point A, but then implementation of fiscal policy causes crowding out to occur. After the implementation occurs, the equilibrium in the market would be best represented by

point D.

The Great Depression provided support for Keynes' view that

prolonged periods of unemployment would be present when demand is deficient.

The goal of expansionary fiscal policy is to increase

real GDP.

Crowding out makes fiscal policy more complicated to formulate because it can ________ the theoretical magnitude of the_______ .

reduce; multiplier effect

When the Federal Reserve sells government bonds to the public, it directly

reduces the M1 money supply and decreases the reserves of the commercial banking system.

When crowding out occurs, it ________ the effectiveness of ________ fiscal policy.

reduces; expansionary

a major advantage of built-in or automatic stabilizers is that they

require no congressional action to be effective.

The Shadow Open Market Committee, a group of economists with the Monetarist point of view, calls for a reduction in the money supply. They must be concerned about _____.

rising rates of inflation

Suppose an economy is in equilibrium at its full employment output level Q2 . Next, suppose the outcome of political events causes pessimism among businesses and consumers and the economy's aggregate demand shifts to AD1 (and the new equilibrium output is Q1). Excluding other events, if the government fails to implement expansionary fiscal policy, in the long run, we would expect Real GDP in the economy to

shift back toward Q2

The demand curve for money

shows the amount of money balances that individuals and businesses wish to hold at various interest rates.

If the economy is producing a level of output $45 billion above full-employment real GDP, the most viable option to shift the output to full-employment GDP would be a

tax increase of some amount less than $45 billion.

Fiscal policy is enacted through changes in

taxation and government purchases

The highest interest rates in the world are found in countries

that have followed an expansionary monetary policy that resulted in high rates of inflation.

The velocity of money is

the average number of times one dollar is used to buy final goods and services during a year.

The 2007-2009 recession began with reductions in investment and consumption spending, precipitated by a financial crisis. This explanation for the recession is consistent with

the mainstream view of macroeconomic instability.

The view that changes in the money supply is the primary cause of changes in real output and the price level is most closely associated with

the monetarist view.

A small reduction in government purchases can lead to a sizeable reduction in real GDP because of

the multiplier effect.

Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect

the population of chickens to rise and the population of cows to fall.

Which school of thought would be considered the most laissez-faire?

the self-correction view

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a

unit of account.

Ordinary commercial banks can expand the supply of money by Group of answer choices

using a portion of their deposits to extend additional loans.

Which of the following compose the reserves of a commercial bank?

vault cash and deposits of the bank with the Federal Reserve

Other things being constant, countries with higher rates of saving Group of answer choices

will have higher rates of investment and growth.

Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometime, you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that Group of answer choices

you can allocate your resources to what gives you the highest value.

If the monetary multiplier is 6, then the reserve requirement must be

0.167

Crowding out is less of a concern in the United States' economy today because the supply of loanable funds is _______ supply.

A global

If a fiscal policy change is going to exert a stabilizing impact on the economy, it must

add demand stimulus during a slowdown but restraint during an economic boom

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

an increase in aggregate demand and real GDP