Question 11

Macroeconomic policy activism:

a. gives the Federal Reserve the sole responsibility for economic policy.

b. advocates that all of the people in a democracy should decide what type of economic policy is appropriate.

c. is the use of monetary and fiscal policy to smooth out the business cycle.

d. is the primary theory of classical economics.

Question 12

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

a. lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap.

b. sacrificing equity for efficiency.

c. budget deficits.

d. budget surpluses.

Question 13

Scenario: Money Supply Changes II

Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. By how much will the money supply contract as a result of the withdrawal?

a. $0

b. $32,000

c. $8,000

d. $40,000

10 points

Question 14

According to a Keynesian economist, a recessionary gap should be fixed with:

a. decreases in government spending.

b. discretionary fiscal policy.

c. a monetary rule.

d. supply-side tax increases to balance the budget.

Question 15

After a revaluation, all other things equal, exports will likely _____ and imports will likely _____.

a. decrease; increase

b. decrease; decrease

c. increase; increase

d. increase; decrease

Question 16

After 1873, the U.S. government:

a. stopped redeeming greenbacks for gold.

b. stopped the use of commodity-backed money.

c. guaranteed the value of a dollar in terms of gold.

d. guaranteed the value of a dollar in terms of gold or silver.

Question 17

Unemployment that is due to the time workers spend in job search is _____ unemployment.

a. cyclical

b. frictional

c. natural

d. structural

Question 1

Most economists now agree that:

a. fiscal policy should be conducted by the Federal Reserve.

b. the government should seek to balance its budget.

c. fiscal policy can change the natural rate of unemployment.

d. fiscal policy can shift aggregate demand.

Question 19

In the liquidity preference model, the money supply is represented by a(n):

a. horizontal line.

b. upward-sloping curve with a slope of 1/V.

c. downward-sloping curve with a slope of 1/k.

d. vertical line.

Question 20

Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.

a. high; quick

b. high; slow

c. low; quick

d. low; slow