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20 Cards in this Set
- Front
- Back
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Fluctuations in employment and output result from changes in
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aggregate demand and aggregate supply.
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"Leaning against the wind" is exemplified by a
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tax cut when there is a recession.
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If the unemployment rate rises, which policies would be appropriate to reduce it?
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increase the money supply, cut taxes
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The Federal Reserve will tend to tighten monetary policy when
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it thinks inflation is too high today, or will become too high in the future
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Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?
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Decrease taxes.
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If the unemployment rate rises, which policies would both be appropriate to reduce it?
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decrease taxes, increase government spending
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The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed
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increased the money supply because it was concerned about unemployment.
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The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed
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decreased the money supply because it was concerned about inflation
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The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?
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increase the money supply, decrease taxes, increase government spending
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The Federal Reserve
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requires little time to change policy but aggregate demand responds slowly.
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Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could
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buy bonds. These purchases also move the price level closer to its original level.
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In theory the severity of recessions can be diminished with
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an increase in government spending, which the length of the political process can delay.
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In 2009 Barack Obama responded to recession
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by cutting taxes and by raising government expenditures.
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An increase in the money supply
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reduces interest rates and shifts aggregate demand to the right.
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Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.
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Correct
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A law that requires the money supply to grow by a fixed percentage each year would eliminate
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both the time inconsistency problem and political business cycles
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The Federal Reserve (2)
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does not have an inflation target; if it did it would likely be in the range of 2%.
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Paul Volcker's inflation reduction efforts
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resulted in the highest unemployment rate since the Great Depression.
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If the public correctly perceives that the central bank will reduce inflation, then
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the short-run Phillips curve shifts left, and the sacrifice ratio will be lower
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Over time continued budget deficits Lead to
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a Lower capital stock and Lower real wages.
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