Which of the following is likely to increase aggregate demand and help an economy expand in periods of recession?

Question

49. Which of the following is likely to increase aggregate demand and help an economy

expand in periods of recession?

A. Open market sales of government securities by the Fed.

B. An increase in the federal government budget deficit.

C. A decrease in the federal government budget deficit.

D. An increase in both short-term and long-term interest rates.

50. Which of the following statements about international trade is true?

A. The value of U.S. imports from Japan exceeds the value of U.S. exports to Japan;

therefore, the U.S. loses while Japan gains as a result of their trading relationship.

B. If the U.S. has a comparative advantage in rice production over Japan, then Japan

can gain by exporting rice to the U.S.

C. Tariffs raise the price of imported textiles, but import quotas on textiles will never

have any effect on their price in the United States.

D. Both tariffs and import quotas on textiles can contribute to higher prices for textiles

in the United States.

Answer 1

49 B is the classic Keynesian policy to increase aggregate demand

50 D tariffs are a tax on imports which raise prices for textiles; import quotas reduce supply and raise prices

50 C is right on tariffs but wrong on import quotas

50B is incorrect. If the US had a comparative advantage in rice production, then Japan would gain by importing rice from the US

50A Although the imbalance creates a trade deficit, trade is not a zero sum game. Both sides gain from voluntary trade, even if unfair trade practices benefit one side more than the other

49D raising interest rates reduces investment which reduces aggregate demand

49C reducing the deficit reduces aggregate demand

49A purchases of government securities by the Fed increases the deficit, increasing aggregate demand. Buying government securities by the Fed decreases aggregate demand