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20 Oct 2020

Which of the policies reduce inflation by reducing aggregate demand?

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Macroeconomics
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Monetary and Fiscal Policy: Application
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Vaishali Yadav
Vaishali YadavLv10
20 Oct 2020
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Related questions

The foreign purchases effect on aggregate demand suggests that a

A. fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand.

B. fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

C. rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand.

D. rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

If the economy was experiencing an inflation gap, the Fed could

A.sell government securities, thereby reducing bank reserves and lowering interest rates, which would decrease investment expenditures as well as aggregate demand.

B.sell government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate demand.

C.sell government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate supply.

D.buy government securities, thereby reducing bank reserves and lowering interest rates, which would decrease investment expenditures as well as aggregate demand.

E.buy government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate supply.

1.Β Β For a fiscal policy to be most effective, we must have

a. perfectly flexible wages and prices.

b. a vertical AS curve.

c. accurate information about the state of the economy.

d. a balanced government budget in each year.

e. a high marginal propensity to save.

2. Which of the following will make crowding out caused by government borrowing more severe?

a. A steep (inelastic) investment demand curve

b. A global credit market

c. Tax increases

d. A steep (inelastic) supply curve in the loanable funds market

e. None of the above

3. Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can

a. decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

b. increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.

c. increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.

d. increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

e. increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation.

Β 

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