Summer A 2018 MWF 800am MacroEconomics ECO 2013 Herby Pierre

Summer A 2018 MWF 8:00am MacroEconomics ECO 2013 Herby Pierre Louis& 6/20/18 10 Quiz: QUIZ 3 Policy and AS-AD Model Time Remaining: 01:11:13 Su This Question: 1 pt 4 of 21 (0 complete) This Quiz: 21 pts Why might increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing infiation? O A. The legislative process works quickly O B. The legislative process experiences longer delays than monetary policy c. The economy may have already slowed. O D. The government has more concentrated power than the Fed

Solution

1)

Right answer is (B)

Policy making lag is larger in fiscal policy than that of monetary policy.

Hence, monetary policy is preferred over the fiscal policy.

2)

Right answer is (B)

In face of recession, Fed would use expansionary monetary policy by pulling down interest rate. It will shift AD to right and more economic activities would ensue.

3)

Right answer is (B)

Contractionary fiscal policy is used by the Fed to counter inflationary pressure , Fed increases interest rate and AD shifts to left side.

4)

Right answer is (A)

If economy is operating below the potential level of output, government resort to increase in transfer payments and reduction in taxes to incentives more economic activities.