Exam 32: Macroeconomic Policy Around the World

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

Economists who subscribe to the rational expectations hypothesis

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

In the 1970s, the U.S. economy experienced both inflation and unemployment. This led economists to recognize that I. stabilization was a much more difficult task than many economists anticipated. II. the Keynesian doctrine correctly asserts that reducing inflation and unemployment can be addressed by fiscal policies. III. shifts in aggregate demand could frustrate policymaking efforts whereas shifts in the short-run aggregate supply were more easily addressed.

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?

The events of the 1980s and early 1990s appear to have been consistent with the hypotheses of either the monetarist or new classical schools.

The classical school focused on the long-run forces that determined an economy's potential level of output.

Writing in 1752, David Hume's essay, "Of Money,"

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Compare and contrast the classical and Keynesian views of aggregate demand and aggregate supply.

The theory that argues most strongly for countercyclical policy activism is

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

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply, thrusting the economy into a recessionary gap. Nominal wages plunged roughly 20% between 1929 and 1933. How did the economy respond to the falling wages?

A fundamental feature of early classical macroeconomics is that

Which of the following statements is true about the Great Depression?

Keynesian economics was mostly concerned with the short run.

Figure 17-2 -Refer to Figure 17-2. The economy is initially in equilibrium at point (1). Now suppose a reduction in the money supply causes aggregate demand to fall to AD₂. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

Figure 17-1 -Refer to Figure 17-1. The Great Depression began with a shift of

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Early classical macroeconomics was based largely on the foundation of