25. Which best describes the incentives that expected inflation provides to dema

Question

25. Which best describes the incentives that expected inflation provides to demanders (consumers) in the economy? A) Consumers will want to purchase now before prices rise further B) Consumers will buy less now and wait until prices stabilize before making more parchases. C) Consumers will prefer to save money rather than spend it on items whose prices are rising. D) Consumer groups will spontaneously protest the price increases by sponsoring boycotts E) Consumer groups will lobby Congress to see if the inflation can be stopped 26. Fiscal policy is defined as the intentional use of the government's A) power to tax and spend to alter aggregate supply to achieve the full employment level of output B) power to tax and spend to achieve a balanced budget C) power to tax and spend to alter the level of ageregate demand to achieve a full employment level of output D) legislative power to coerce households and businesses into altering their spending habits in order to fight inflation 27. The first 26 weeks of unemployment inurance functions a periods of economic downtarn A) a form of discretionary fiscal policy B) a tax on unemployment insurance recipients C) an automatic stabiluzer D) a strategy to soak the rich replacing some income during 28. In calculating the Consumer Price Index, the 'market basket' is A) the tangible goods, but not services, the typical consumer purchases during a given period B) the hypothetical bundle of goods that consumers would purchase if they had enoagh income C) the comabination of goods and services that the typical consumer purchases C) D) sunm total of all grocery itenms the typical consumer purchases during a given time period 29. The type of money the U.S. and most nations use is called A. conumodity money B. fiat money C paper money D. gold 30. If the Federal Reserve wished to stimulate the economy it would A. Purchase U.S. treasury securities B. Sell treasury securities C Increase the discount rate D. Sell U.S. treasury securities

Explanation / Answer

25. If consumers expect an inflation, then they expect prices are going to rise, therefore they would want to purchase items now before they rise further.

Option (A) is correct.

26. Fiscal policy is when government uses taxes and spending to influence the economy.

Total spending by both consumers and government together is an aggregation of demand in all sectors of economy, which is called aggregate demand.

Thus, when government uses fiscal policy by spending or taxing(which is nothing but increased spending by consumers), it alters the level of aggregate demand.

Option (C) is correct.

27. During periods of economic downturn, when unemployment rises, government transfers rise due to people availing of the existing benefit programs like 26 week unemployment insurance. Thus government is not having to undertakeke any discretionary policy changes, thus 26 week unemployment insurance acts as an Automatic Stabilizer.

Option (C) is correct.

28. Consumer Price Index is closely related to GDP, which is the value of all final goods and services.

Thus the market basket in the Consumer Price Index is the combination goods and services which a typical consumer consumes.

Option (C) is correct.

29. The type of money used in Us and other nations is currency notes, which is Fiat money, or which itself does not have any intrinsic value but is accepted to be the official form of money by official decree.

Option (B) is correct.

30. The Federal Reserve may stimulate the economy by increasing the amount of mo ey supply available in the economy.

It can do this by purchasing US Treasury securities.

Option (A) is correct.

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