Exam 17: A Brief History of Macroeconomic Thought and Policy

The rational expectations hypothesis assumes that individuals form expectations about Jthe future based on the information available to them and that they act on those Jexpectations.

Keynes's theory of macroeconomics rejects classical macroeconomists' assumptions that

Which of the following groups of economists perceive the economy as essentially stable and self-correcting?

Which of the following was not an explanation for the lower volatility of the U.S. economy during the 25-year period that preceded the Great Recession?

In the 1970s, the U.S. economy saw sharp changes in real GDP and in the price level. This Jpresented a challenge to policymakers and to economists because these outcomes could not be explained by a Keynesian analysis.

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I. reduction in wealth II. reduction in net exports III. a financial crisis that reduced money supply IV. tax increases

During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?

Which of the following policies would supply-side economists favor?

New classical economists believe that the potential output of the economy is stable.

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply. As a result, the economy moved to

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

The Smoot-Hawley Tariff Act of 1930 contributed to the collapse of global trade

In the U.S., the Great Recession was fought with traditional monetary and fiscal policies,

Which of the following is true about new Keynesian economics? I. It incorporates monetarist ideas about the importance of monetary policy. II. It incorporates new classical ideas about the importance of aggregate supply. III. It includes a greater use of microeconomic analysis in macroeconomic analysis than Keynesian economics. IV. Unlike Keynesian economics, it is opposed to active stabilization policies.

The inability of the government to stabilize the economy in the 1970s when real GDP has fallen, but inflation has remained high, led Robert Lucas to challenge the Keynesian macroeconomic policy prescriptions. Which of the following is the main tenet of his argument?

While Keynes argued that the Great Depression was caused by government interference in Jthe economy, monetarists contended that it was the result of a decline in investment Jexpenditures.

According to the monetarists, after an initial increase in aggregate demand,

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I. reduction in wealth II. reduced consumer confidence III. tax increases IV. an expansionary monetary policy that caused inflation

Which of the following statements is true about Keynes' macroeconomic theory?

The body of economic thought associated with 19th century economist