Exam 2 Possible Multiple Choice

The school of economic thought which promotes active government intervention in the economy through fiscal policy is

Keynesian

The long run aggregate supply curve relates to the level of output produced by firms to the _ in the long run?

price level

Inflation pressures rise in the short-run whenever _?

AD increases

In the short run, which of the following prevent the economy from operating at potential output

sticky prices and sticky wages

both fiscal and monetary policies can be used to stabilize the economy

true

government intervention can help the economy get back on its feet faster

true

neoclassical perspective looks at the long run and argues that prices are flexible over time

true

monetary policies yield the fastest response to addressing a change in the economy

true

the shape of the long run aggregate supply curve is vertical

true

prices and wages are flexible in both the short run and the long run

false

all societies experience short run economic fluctuations

true

any event of policy that reduces consumption, investment, government spending, or net exports will decrease aggregate demand

true

Keynes’ law says that demand creates is own supply

true

neoclassical economists emphasize that supply creates demand

true

the downward sloping aggregate demand curve shows the relationship between the price level for outputs and the quantity of total spending in the economy

true

the wealth effect, interest rate, and foreign price effect causes aggregate demand curve to slope downward

true

aggregate demand is always stable and will never change

false

disposable income is income before taxes

false

a decrease in government spending will cause aggregate demand to remain stable, and will never change

false

decrease in taxes

increase aggregate demand

desire to save more

decreases aggregate demand

increase in interest rates

decrease in aggregate demand

increase in future expected income

increase in aggregate demand

The federal open market committee determines US fiscal policy

false

an increase in the money supply typically lowers interest rates in the short run

true

the reserve requirement is the percentage of deposits that banks must hold as reserves

true

the Fed can influence inflation and unemployment through monetary policy 

true

the Fed can influence interest rates and money supply

true

M1 includes saving accounts, checking deposits, and physical currency

false

the federal reserve’s primary policy making body is the 

board of governors

which of the following is an example of an expansionary monetary policy?

lowering interest rates

which of the following is not a function of the federal reserve?

setting fiscal policy