49) Suppose the government wants to maintain a balanced budget. To achieve this
ID: 1206483 • Letter: 4
Question
49) Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
50) Borrowing to pay for long-lived capital expenditures makes sense as
A) the benefits are received in the current year so the burden of paying for them should be spread over many years.
B) the benefits are received over many years so the burden of paying for them should be spread over many years.
C) the benefits are received in the current year so the burden of paying for them should be paid in the current year.
D) the benefits are received over many years so the burden of paying for them should be paid in the current year.
51) An increase in the interest rate
A) increases the opportunity cost of holding money.
B) decreases the percentage yield of holding money.
C) increases the percentage yield of holding money.
D) decreases the opportunity cost of holding money.
52) Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
A) not change.
B) increase.
C) decrease.
D) increase if the economy is in a recession.
53) If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.
A) reduce; lower
B) increase; raise
C) reduce; raise
D) increase; lower
54) If the Fed buys Treasury bills, this will shift the
A) money supply curve to the right.
B) money demand curve to the right.
C) money demand curve to the left.
D) money supply curve to the left.
Explanation / Answer
49. C) increase; decrease
50. B) the benefits are received over many years so the burden of paying for them should be spread over many years
51 A) increases the opportunity cost of holding money.
52. C) decrease.
53. D) increase; lower
54.B) money supply curve to the right.
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