Question 1

Which of the following is an example of a contractionary fiscal policy?

Accepted Answer

A)   the Fed buying government securities in the open market
B)   the federal government decreasing the marginal tax rate on incomes below $200,000
C)   the federal government decreasing the amount of money spent on public health programs
D)   the federal government reducing pollution standards to allow firms to produce more outputE) A) and B)
F) All of the above

Question 2

Refer to the information provided in Figure 27.3 below to answer the question(s)  that follow. 2. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P2 and output will be ________ than Y2. A)  greater; greater B)  greater; less C)  less; less D)  less; greater" class="answers-bank-image d-inline" rel="preload" > Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS2. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P2 and output will be ________ than Y2.

Accepted Answer

A)   greater; greater
B)   greater; less
C)   less; less
D)   less; greaterE) All of the above
F) A) and B)

Question 3

The aggregate demand curve would shift to the right if

Accepted Answer

A)   government spending were decreased.
B)   net taxes were decreased.
C)   the money supply were decreased.
D)   the cost of energy were to increase.E) B) and C)
F) None of the above

Question 4

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

Accepted Answer

A)   on the very steep part of the short-run aggregate supply curve.
B)   on the very flat part of the short-run aggregate supply curve.
C)   on the very steep part of the short-run aggregate demand curve.
D)   on the very flat part of the short-run aggregate demand curve.E) A) and B)
F) A) and D)

Question 5

The economy is in a binding situation when the Fed rule calls for a very high interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Other things equal, demand-pull inflation results in output ________ and the price level ________.

Accepted Answer

A)   increasing; increasing
B)   increasing; decreasing
C)   decreasing; increasing
D)   decreasing; decreasingE) All of the above
F) A) and D)

Question 7

An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

Accepted Answer

A) True 
 B)False

Question 8

An increase in aggregate demand causes stagflation.

Accepted Answer

A) True 
 B)False

Question 9

When analyzing the effects of cost shocks, the shape of the aggregate demand curve is irrelevant.

Accepted Answer

A) True 
 B)False

Question 10

When the AD curve is relatively flat, the Fed

Accepted Answer

A)   is only willing to accept small changes in output to keep the price level stable.
B)   is willing to accept large changes in the price level to keep output stable.
C)   is not willing to accept any changes in output to keep the price level stable.
D)   is willing to accept large changes in output to keep the price level stable.E) All of the above
F) C) and D)

Question 11

In a binding situation,an increase in government spending

Accepted Answer

A)   shifts the AD curve to the right.
B)   shifts the AD curve to the left.
C)   does not shift the AD curve.
D)   causes the AD curve to become horizontal.E) B) and D)
F) A) and C)

Question 12

In a binding situation, a decrease in net taxes

Accepted Answer

A)   shifts the AD curve to the right.
B)   shifts the AD curve to the left.
C)   does not shift the AD curve.
D)   causes the AD curve to become horizontal.E) None of the above
F) A) and B)

Question 13

Refer to the information provided in Figure 27.2 below to answer the question(s)  that follow. 1 to AD2. B)  AD3 to AD4. C)  AD5 to AD6. D)  AD6 to AD1." class="answers-bank-image d-inline" rel="preload" > Figure 27.2
-Refer to Figure 27.2. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Accepted Answer

A)   AD1 to AD2.
B)   AD3 to AD4.
C)   AD5 to AD6.
D)   AD6 to AD1.E) C) and D)
F) A) and B)

Question 14

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

Accepted Answer

A)   consumption; planned investment
B)   government spending; planned investment
C)   planned investment; consumption
D)   planned investment; government spendingE) C) and D)
F) B) and C)

Question 15

A(n)  ________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the ________.

Accepted Answer

A)   decrease; right
B)   increase; right
C)   decrease; left
D)   increase; leftE) C) and D)
F) B) and C)

Question 16

If the economy is on the flat portion of the AS curve

Accepted Answer

A)   there is little crowding out of planned investment.
B)   there is almost complete crowding out of planned investment.
C)   consumption, but not government spending, crowds out planned investment.
D)   government spending, but not consumption, crowds out planned investment.E) B) and C)
F) All of the above

Question 17

Zero interest rate bound means the interest rate cannot go below zero.

Accepted Answer

A) True 
 B)False

Question 18

If wages adjust fully to price increases in the long run, fiscal policy will

Accepted Answer

A)   have no affect on the price level.
B)   have no affect on output.
C)   have no affect on either output or the price level.
D)   affect both output and the price level.E) All of the above
F) A) and D)

Question 19

If the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.

Accepted Answer

A)   no change; no change
B)   a decrease; an increase
C)   no change; an increase
D)   a decrease; no changeE) C) and D)
F) None of the above

Question 20

For an economy to experience both a recession and inflation at the same time

Accepted Answer

A)   the aggregate supply curve must shift to the right.
B)   the aggregate supply curve must shift to the left.
C)   the aggregate demand curve must shift to the left.
D)   the aggregate demand curve must shift to the right.E) B) and C)
F) C) and D)

Exam 27: Policy Effects and Cost Shocks in the Asad Model

If the economy is on the flat portion of the AS curve

Correct Answer
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If the economy is on the steep portion of the AS curve and taxes decrease, crowds out .

Correct Answer
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Correct Answer
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When analyzing the effects of cost shocks, the shape of the aggregate demand curve is irrelevant.

Correct Answer
verified

An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

Correct Answer
verified

In a binding situation, a decrease in net taxes

Correct Answer
verified

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Correct Answer
verified

When the AD curve is relatively flat, the Fed

Correct Answer
verified

An increase in aggregate demand causes stagflation.

Correct Answer
verified

The economy is in a binding situation when the Fed rule calls for a very high interest rate.

Correct Answer
verified

Zero interest rate bound means the interest rate cannot go below zero.

Correct Answer
verified

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

Correct Answer
verified

Other things equal, demand-pull inflation results in output and the price level .

Correct Answer
verified

Which of the following is an example of a contractionary fiscal policy?

Correct Answer
verified

For an economy to experience both a recession and inflation at the same time

Correct Answer
verified

The aggregate demand curve would shift to the right if

Correct Answer
verified

A(n) in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the .

Correct Answer
verified

In a binding situation,an increase in government spending

Correct Answer
verified

If wages adjust fully to price increases in the long run, fiscal policy will

Correct Answer
verified

If the AD curve is vertical, a positive cost shock will cause in output and in the price level.

Correct Answer
verified

Exam 27: Policy Effects and Cost Shocks in the Asad Model

If the economy is on the flat portion of the AS curve

Correct AnswerverifiedShow Answer

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When analyzing the effects of cost shocks, the shape of the aggregate demand curve is irrelevant.

Correct AnswerverifiedShow Answer

An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

Correct AnswerverifiedShow Answer

In a binding situation, a decrease in net taxes

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Correct AnswerverifiedShow Answer

When the AD curve is relatively flat, the Fed

Correct AnswerverifiedShow Answer

An increase in aggregate demand causes stagflation.

Correct AnswerverifiedShow Answer

The economy is in a binding situation when the Fed rule calls for a very high interest rate.

Correct AnswerverifiedShow Answer

Zero interest rate bound means the interest rate cannot go below zero.

Correct AnswerverifiedShow Answer

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

Correct AnswerverifiedShow Answer

Other things equal, demand-pull inflation results in output ________ and the price level ________.

Correct AnswerverifiedShow Answer

Which of the following is an example of a contractionary fiscal policy?

Correct AnswerverifiedShow Answer

For an economy to experience both a recession and inflation at the same time

Correct AnswerverifiedShow Answer

The aggregate demand curve would shift to the right if

Correct AnswerverifiedShow Answer

A(n) ________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the ________.

Correct AnswerverifiedShow Answer

In a binding situation,an increase in government spending

Correct AnswerverifiedShow Answer

If wages adjust fully to price increases in the long run, fiscal policy will

Correct AnswerverifiedShow Answer

If the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.

Correct AnswerverifiedShow Answer

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If the economy is on the steep portion of the AS curve and taxes decrease, crowds out .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Other things equal, demand-pull inflation results in output and the price level .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A(n) in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the .

Correct Answer
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Correct Answer
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Correct Answer
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If the AD curve is vertical, a positive cost shock will cause in output and in the price level.

Correct Answer
verified