1. If the aggregate supply curve is steep, business firms are probably producing
ID: 1117505 • Letter: 1
Question
1. If the aggregate supply curve is steep,
business firms are probably producing near capacity.
increased aggregate demand will not lead to higher prices.
greater demand for labor will not cause significant wage increases.
All of the above are correct.
2. Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.
no; no
some; no
no; some
some; some
3. Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?
all of the above
The Fed's actions could do more harm than good.
It is nearly impossible to determine if a bubble exists before it bursts.
The Fed's policies cannot be targeted at only one sector of the economy.
4. Regarding government intervention in the economy, which of the following statements is not true?
The effect of government actions on interest rates and spending is unknown.
Liberals tend to favor intervention.
Conservatives are inclined to adhere to fixed rules.
There is no guarantee that government intervention will have the desired effect.
All of the above are true.
5. Some economists believe that policy makers should avoid stabilization policy because
stabilization policies are rarely signed into law.
it never works.
lags make the policy impact unpredictable.
no tax cut ever stimulated demand.
a.business firms are probably producing near capacity.
b.increased aggregate demand will not lead to higher prices.
c.greater demand for labor will not cause significant wage increases.
d.All of the above are correct.
2. Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.
a.no; no
b.some; no
c.no; some
d.some; some
3. Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?
a.all of the above
b.The Fed's actions could do more harm than good.
c.It is nearly impossible to determine if a bubble exists before it bursts.
d.The Fed's policies cannot be targeted at only one sector of the economy.
4. Regarding government intervention in the economy, which of the following statements is not true?
a.The effect of government actions on interest rates and spending is unknown.
b.Liberals tend to favor intervention.
c.Conservatives are inclined to adhere to fixed rules.
d.There is no guarantee that government intervention will have the desired effect.
e.All of the above are true.
5. Some economists believe that policy makers should avoid stabilization policy because
a.stabilization policies are rarely signed into law.
b.it never works.
c.lags make the policy impact unpredictable.
d.no tax cut ever stimulated demand.
Explanation / Answer
1. Option A
Vertical or steep supply curve implies that the output is more or less reached the full employement level and the firms are producing at their maximum capacity.
2. Option A
Treasury securities are issued by the government, so there is no risk. collatralized asset is backed in mortgage securities which reduces the risk of default.
3. Option A.
When the prices of assets increases over its fundamental prices, its known as asset price bubble. All the given options are correct.
4. Option A
Government does target the interest rates and spending in the form of policy action as and when required.
5. Option C
There is a time lag of when the policy is implemented and when the results are shown up. This makes the policy outcomes unpredictable.
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