Use of Activist Fiscal and Monetary Policy Can Bring Rapid

question 176

Multiple Choice

Use of activist fiscal and monetary policy can bring rapid growth, as was the case in the United States before the 1972 election. One consequence of an activist policy is:

• A) use of macroeconomic policy that stabilizes the economy.
• B) a political business cycle caused by the use of macroeconomic policy to serve political ends.
• C) countercyclical macroeconomic policy designed to help the economy.
• D) crowding out as decreases in government spending push out the private business spending.

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Definitions:

Inflation Rate

The percentage increase in the general price level of goods and services in an economy over a period of time, indicating the rate at which purchasing power is falling.

Money Demand

The desired holding of financial assets in the form of money; that is, cash or bank deposits.

Price Level

Price level is the average of current prices across the entire spectrum of goods and services produced in the economy, indicating inflation or deflation.

Quantity Theory

A theory in economics that argues the general price level of goods and services is directly proportional to the amount of money in circulation.