1. Fiscal policy advisor Jones wants to increase aggregate demand while monetary policy advisor Smith wants to reduce aggregate demand. Which of the following combinations of fiscal and monetary policies would there two advisors suggest to achieve their conflicting goals.
Equal decreases in taxes and government spending, an increase in the Federal Reserve's discount rate.
Government spending decreases, an increase in the reserve requirements for commercial banks.
Tax decreases, open market purchases of bonds by the Federal Reserve.
Tax decreases, open market sales of bonds by the Federal Reserve.
2. An expansionary monetary and contractionary fiscal policy mix would increase future economic growth if it promoted:
high interest rates, which encourage people to save and invest.
low levels of personal savings to finance present consumption.
low interest rates, which encourage business investment.
high levels of personal savings to finance future consumption.
3. The central bank raised the discount rate it charged on loans to commercial banks. A critic who believed that market rates of interest should be kept low said that the central bank should instead have increased the legal reserve requirements of commercial banks. Which of the following is true of hte criticism?
It confuses interest rates with the discount rate.
It is based on correct economic analysis.
It confuses monetary policy with fiscal policy.
It is self-contradictory.
4."Unemployment last month was 4.8 percent of the work force, a slight reduction from the previous month. For the past 15 months, unemployment has been under 5 percent of the work force. Consumer prices last month increased by two-tenths of a percent-a total gain of 2 percent over the level of one year ago. Total production of goods and services is projected to be 5 percent higher this year than last year."
Which of the following policies would be the most appropriate for short-run stabilization objectives?
Passing new corporate tax incentives to encourage investment
Increasing the minimum wage and expanding the number of jobs covered by these laws.
Relying on automatic stabilizers
Increasing both personal and corporate income taxes
5."A $7.7 billion tax cut was accompanied by a $9 billion increase in consumer spending in the same year." The most probable reason why consumer spending increased by more than taxes is that:
The tax cut induced more transfer payments which in turn caused consumer spending by others.
Spending by those with higher take-home pay in turn generated additional production and spending by others.
Lower taxes required lower government spending which in turn encouraged private spending by others.
The tax cut reduced interest rates which in turn stimulated borrowing by others.
6."I have promised to do everything in my power to reduce the federal deficit. That means reduced federal expenditures and, if necessary, increasing taxes. Under present conditions of full emplyment and steady prices, we can afford to bear the burden of this debt now instead of passing it on to our children and grandchildren."
If the policies of the Senator quoted above were adopted. What effect would be expected while these policies were being implemented?
Increased imports
Increased unemployment and idle capacity
Higher inflation
Higher rates of economic growth
7. If rapid inflation occurs in a relatively full employment economy, well-coordinated monetary and fiscal policies would involve:
A government deficit, the purchase of securities in the open market and a higher discount rate
A government surplus, the sale of securities in the open market and a higher discount rate
A government deficit, the sale of securities in the open market and a higher discount rate
A government surplus, the purchase of securities in the open market and a lower discount rate