Question

What was one of the major reasons why the United States was slower to recover from the 2008–2009 recession than Canada?

a	The impact of the rise in house prices on Canadian household consumption was greater.
b	Housing price declines in the United States were much larger than in Canada.
c	Housing price declines in Canadian were much larger than in the United States.
d	The impact of the rise in house prices on American household consumption was greater.

3. When a central bank sets a target for the interest rate, what does it commit itself to?

a	adjusting the money supply in order to meet the interest-rate target
b	having to make open-market sales
c	revealing its target to the public
d	adjusting the demand for money in order to make the equilibrium in the money market hit that target

4. According to supply-side theories, what happens if the government cuts the tax rate?

a	Workers keep more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
b	Workers keep less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
c	Workers keep less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
d	Workers keep more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

5. Which statement is consistent with the Keynesian theory?

a	Changes in consumer confidence are irrelevant for the economy.
b	Short-run economic fluctuations are caused by unstable aggregate demand; therefore, policy instruments should be used to stabilize the economy.
c	Irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment.
d	Changes in business and consumer expectations generally stabilize the economy.

6. Which statement do opponents of active stabilization policy believe?

a	A monetary policy designed to offset changes in the unemployment rate is effective.
b	Fiscal policy is unable to change aggregate demand or aggregate supply.
c	Fluctuations would not exist in the absence of fiscal policies.
d	The political process creates lags in the implementation of fiscal policy.

7. During recessions, how do automatic stabilizers change government deficit and taxes?

a	Both deficit and taxes decrease.
b	Deficit decreases and taxes increase.
c	Both deficit and taxes increase.
d	Deficit increases and taxes decrease.

8. If the short-run Phillips curve were stable, what would be unusual?

a	an increase in both inflation and unemployment
b	a decrease in inflation and an increase in unemployment
c	an increase in output and a decrease in unemployment
d	an increase in inflation and an increase in output

9. According to Friedman and Phelps, no matter what a central bank does to the money supply, what will happen in the long run?

a	The inflation rate will tend to the natural rate of inflation.
b	The economy will have a zero inflation rate.
c	The unemployment rate will tend toward the natural rate of unemployment.
d	The economy will have a zero unemployment rate.

Answer 1

2(D) The impact of the rise in house prices on American household consumption was greater.

reason in the US home prices was greater due to low interest rate and demand for home was high that was the main factor caused the US to late recovery.

3. (A)  adjusting the money supply in order to meet the interest-rate target

Reason federal system will adjust money supply in the economy while targeting interest rate. federal reserve by adjusting nominal interest rate and inflation try to adjust the real interest rate that affect the money supply.

4. (D) Workers keep more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

Reason According to the supply-side view, reductions in tax rates will shift the aggregate supply function rightward because individuals will choose to increase their total number of works hours with more income in their hand for spending.

5. (B) Short-run economic fluctuations are caused by unstable aggregate demand; therefore, policy instruments should be used to stabilize the economy.

Reason according to Keynes short run economic fluctuations can be overcome by following stabilization policy of government.

6. (D) The political process creates lags in the implementation of fiscal policy.

Reason Opponents of active stabilization believe that significant time lags in both fiscal and monetary policy often exacerbate economic fluctuations.