When a recession is caused by a real shock, an expansionary fiscal policy will r

Question

When a recession is caused by a real shock, an expansionary fiscal policy will result in an increase in:

Select one:

a. the unemployment rate.

b. the inflation rate which is higher than the increase in the growth rate.

c. the growth rate which is higher than the increase in the inflation rate.

d. productivity.

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Monetary policy is:

Select one:

a. less effective in dealing with real shocks than with aggregate demand shocks.

b. totally ineffective in dealing with real shocks and aggregate demand shocks.

c. more effective in dealing with real shocks than with aggregate demand shocks.

d. equally effective in dealing with real shocks and aggregate demand shocks.

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Suppose an economy is experiencing a deep recession due to a drop in aggregate demand. The unemployment rate has climbed but to nearly 10% and the price level has plummeted into the range of deflation. What could the Federal Reserve do to try and stabilize the economy?

Select one:

a. Increase interest rates by decreasing the supply of money

b. Create incentives for banks to make more loans by increasing bank reserves

c. Mandate that all banks increase lending or face financial penalties

d. Slow down the economy to stop the deflation

Fiscal Policy is based on the ideas of:

Select one:

a. John Maynard Keynes

b. Karl Marx

c. Milton Friedman

d. Adam Smith

Explanation / Answer

When a recession is caused by a real shock, an expansionary fiscal policy will result in an increase in:

- the inflation rate which is higher than the increase in the growth rate.

Monetary policy is:

- less effective in dealing with real shocks than with aggregate demand shocks.

Suppose an economy is experiencing a deep recession due to a drop in aggregate demand. The unemployment rate has climbed but to nearly 10% and the price level has plummeted into the range of deflation. What could the Federal Reserve do to try and stabilize the economy?

- Create incentives for banks to make more loans by increasing bank reserves

Fiscal Policy is based on the ideas of:

- John Maynard Keynes

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