If a “liberal” wanted to decrease aggregate demand, which of the following would he or she tend to favor?
A. An increase in government spending, because it will increase the size of the public sector.
B. A decrease in government spending, because it keeps the public sector small.
C. An increase in transfer payments, because it has a larger multiplier than tax changes.
D. An increase in taxes, because it makes the public sector larger.
Answer: D
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Discretionary monetary policy is defined as policy
A) that is based on the judgments of policymakers. B) for which the markets make all decisions. C) that is pursued regardless of the current state of the economy. D) that responds to a changing economy with predetermined rules. E) for which the policymaker always publicizes the policy as extensively as possible because its effectiveness depends on the public's knowledge of the policy.
Financial innovations can have the effect of
A) only decreasing the demand for money. B) only increasing the demand for money. C) either increasing or decreasing the demand for money depending on what the innovation is. D) increasing the Fed's monetary policy.