The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. O The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. O The current tax system acts as an automatic stabilizer. O Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. Which of the following are examples of automatic stabilizers? Check all that apply. O Unemployment insurance benefits O The federal funds rate O Corporate income taxes

Which statement is most likely consistent with the classical view? O The Congress should set interest rate targets. The monetary policy is more effective than Keynesian theory. Fiscal policy works better than monetary policy. O Fiscal and monetary policies cause more economic instability than stability.

ses Aside from the few years during Clinton's administration, what is the state of the national debt? Select one: O a. the debt is growing O b. the debt has been reduced considerably during the Bush and Obama administrations. O c. the debt is steadily shrinking O d. the debt is mostly staying the same Which president tried to limit

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The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring Inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS Real GDP (billions of dollars) AD₁ AD 40 80 160 240 320 400 480 560 640 720 800 Instructions: Round your answers to 2 decimal places. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose Instead that the MPC is 0.5. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.

What happens if there is an increase in the budget deficit? O O Raise the real Interest rate and decline the quantity of loanable funds demanded for Investment Lower the real Interest rate and decrease the quantity of loanable funds demanded for Investment. Lower the real Interest rate and increase the quantity of loanable funds demanded for Investment. Raise the real Interest rate and increase the quantity of loanable funds demanded for Investment. Reset Answer

Determine whether the following items are examples of expansionary fiscal policy, contractionary fiscal policy, expansionary monetary policy or contractionary monetary policy as they affect the aggregate demand of an economy. 1. A Significant treasury bond buyback *a. Expansionary fiscal policyb. Contractionary fiscal policyc. Expansionary monetary policyd. Contractionary monetary policy 2. Issuance of new treasury bonds at a higher interest rate *a. Expansionary fiscal policyb. Contractionary fiscal policyc. Expansionary monetary policyd. Contractionary monetary policy

The classical model focuses on O increasing goverment spending both the shifting of the aggregate demand curve and aggregate supply curve. O a shifting of the aggregate demand curve. O a shifting of the aggregate supply curve. Question 9 For the classical model to work, it is important that O people be willing to cooperate and compromise. O there be top/down centralized management of the economy. O the government is willing to help increase aggregate demand. O the value of debt is increased through inflation.

Always use economic terms, diagrams. "Counter-cyclical fiscal policy works.  If consumers and businesses lose confidence because of the changing world, the government can fix this economic problem - that is what the Biden $1.9 trillion stimulus was all about.  Sure, there might be some issues with the deficit, but given a recovery, the government can pay that deficit off. Also, since we are in a very inflationary period again we might expect counter-cyclical fiscal policy to resolve some of the debt issues."  Please explain this comment.  (Hint: don't forget to use an AS AD diagram and possibly a business cycle diagram).