Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A) lower; lower B) lower; higher C) higher; higher D) higher; lower
Ques. 2John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending
A) the economy will benefit in the short run and benefit by an even greater amount in the long run.
B) this will have a major negative impact on the economy in both the short run and in the long run.
C) this may benefit the economy in the long run, but could be counterproductive in the short run.
D) this may benefit the economy in the short run, but not in the long run.
Ques. 3What is a supply shock, and why might a supply shock lead to stagflation?
What will be an ideal response?
Ques. 4The purchase of Treasury securities by the Federal Reserve will, in general
A) not change the money supply.
B) decrease the quantity of reserves held by banks.
C) increase the quantity of reserves held by banks.
D) not change the quantity of reserves held by banks.
Ques. 5Using aggregate demand and aggregate supply, explain what happens in the short run if the Federal Reserve raises interest rates in the economy. Be sure to detail what happens to aggregate demand, the price level, the level of GDP, and unemployment.
Assume that the economy is at full employment before the interest rate increase.
Ques. 6The passage of the Smoot-Hawley Tariff in 1930 sparked a trade war that caused net exports to ________ and real GDP to ________.
A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
Ques. 7If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
A) the money supply and a decrease in interest rates.
B) taxes.
C) oil prices.
D) government purchases.
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