Question 1

Which of the following is true about the Great Depression?

Accepted Answer

A)  Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B)  Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C)  The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D)  The Great Depression could be explained by classical economic theory. 
A)  Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B)  Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C)  The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D)  The Great Depression could be explained by classical economic theory.

Question 2

Supply-side economics is the belief that fiscal policy can be used to stimulate long-run
economic growth.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the U.S. economy experiences stagflation. An expansionary fiscal policy

Accepted Answer

A)  increases real GDP and lowers inflation. 
B)  has no effect on real GDP but raises inflation. 
C)  increases real GDP and aggravates inflation. 
D)  increases real GDP and has no effect on inflation. 
A)  increases real GDP and lowers inflation. 
B)  has no effect on real GDP but raises inflation. 
C)  increases real GDP and aggravates inflation. 
D)  increases real GDP and has no effect on inflation.

Question 4

The General Theory of Employment, Interest, and Money was written by

Accepted Answer

A)  Robert Lucas. 
B)  David Ricardo. 
C)  John Maynard Keynes. 
D)  Thomas Malthus. 
A)  Robert Lucas. 
B)  David Ricardo. 
C)  John Maynard Keynes. 
D)  Thomas Malthus.

Question 5

According to the Keynesian theory of income and employment,

Accepted Answer

A)  the economy automatically tends toward equilibrium at the level of full employment. 
B)  the economy never tends toward equilibrium. 
C)  the economy may be in equilibrium at less than full employment. 
D)  the economy's level of employment is unrelated to its level of income. 
A)  the economy automatically tends toward equilibrium at the level of full employment. 
B)  the economy never tends toward equilibrium. 
C)  the economy may be in equilibrium at less than full employment. 
D)  the economy's level of employment is unrelated to its level of income.

Question 6

A policy implication of Keynesian economics is that

Accepted Answer

A)  full employment will always be maintained. 
B)  countercyclical policies have no effect on the economy. 
C)  constant growth of the money supply is better than discretionary policies. 
D)  countercyclical monetary and fiscal policies can be used to achieve full employment. 
A)  full employment will always be maintained. 
B)  countercyclical policies have no effect on the economy. 
C)  constant growth of the money supply is better than discretionary policies. 
D)  countercyclical monetary and fiscal policies can be used to achieve full employment.

Question 7

Monetarists argue that

Accepted Answer

A)  the impact lag for monetary policy is short and predictable. 
B)  stabilization policies may actually be destabilizing. 
C)  the Federal Reserve System should use active monetary policy. 
D)  active monetary policy should be used to reinforce active fiscal policy. 
A)  the impact lag for monetary policy is short and predictable. 
B)  stabilization policies may actually be destabilizing. 
C)  the Federal Reserve System should use active monetary policy. 
D)  active monetary policy should be used to reinforce active fiscal policy.

Question 8

Monetarists argue that

Accepted Answer

A)  the Federal Reserve System should institute a prescribed rate of growth in the money supply. 
B)  since velocity is unstable, a fixed annual increase in the money supply will exacerbate inflation in the long run. 
C)  self-correction is less effective than activist monetary policy. 
D)  policymakers should use monetary policy rather than fiscal policy to stabilize the economy. 
A)  the Federal Reserve System should institute a prescribed rate of growth in the money supply. 
B)  since velocity is unstable, a fixed annual increase in the money supply will exacerbate inflation in the long run. 
C)  self-correction is less effective than activist monetary policy. 
D)  policymakers should use monetary policy rather than fiscal policy to stabilize the economy.

Question 9

Figure 17-3  
-Refer to Figure 17-3. Suppose the economy is at point a. The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Accepted Answer

A)  point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B)  point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C)  point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D)  point a to point c whereas new Keynesian economics suggests that it will move point a to point d. 
A)  point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B)  point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C)  point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D)  point a to point c whereas new Keynesian economics suggests that it will move point a to point d.

Question 10

Which of the following statements is true about classical economists?

Accepted Answer

A)  They represent a large and cohesive group of economists who agreed with David Ricardo concerning wage and price flexibility in both the short run and the long run. 
B)  They may have shared some ideas in common, but their views were far from uniform. 
C)  They did not believe in the neutrality of money. 
D)  Their theories shed little insight on the economy today because modern issues and concerns are so different from those described in their earlier writings. 
A)  They represent a large and cohesive group of economists who agreed with David Ricardo concerning wage and price flexibility in both the short run and the long run. 
B)  They may have shared some ideas in common, but their views were far from uniform. 
C)  They did not believe in the neutrality of money. 
D)  Their theories shed little insight on the economy today because modern issues and concerns are so different from those described in their earlier writings.

Question 11

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

Accepted Answer

A)  an administrative lag. 
B)  an impact lag. 
C)  a recognition lag. 
D)  an implementation lag. 
A)  an administrative lag. 
B)  an impact lag. 
C)  a recognition lag. 
D)  an implementation lag.

Question 12

The Smoot-Hawley Tariff Act of 1930

Accepted Answer

A)  was passed to protect domestic jobs by imposing fines on firms that imported raw materials from abroad. 
B)  mandated the federal budget be balanced. 
C)  dramatically raised tariffs on products imported into the U.S. and led to retaliatory trade- restricting legislation around the world. 
D)  subsidized domestic firms which produced products for export. 
A)  was passed to protect domestic jobs by imposing fines on firms that imported raw materials from abroad. 
B)  mandated the federal budget be balanced. 
C)  dramatically raised tariffs on products imported into the U.S. and led to retaliatory trade- restricting legislation around the world. 
D)  subsidized domestic firms which produced products for export.

Question 13

Figure 17-3  
-Refer to Figure 17-3. Suppose the economy is at point a. Assume that (1) the public's expectations are completely rational; (2) markets allocate resources instantaneously; and (3) the economy is at its natural level of employment. The theoretical adjustment path resulting from an increase in aggregate demand according to the rational expectations hypothesis is

Accepted Answer

A)  a to c to d. 
B)  a to b to d. 
C)  a to d. 
D)  a to b and back to a. 
A)  a to c to d. 
B)  a to b to d. 
C)  a to d. 
D)  a to b and back to a.

Question 14

A 2010 survey of economists suggested that the _______ approach is the preferred approach to macroeconomic analysis.

Accepted Answer

A)  Keynesian 
B)  monetarist 
C)  new classical 
D)  new Keynesian 
A)  Keynesian 
B)  monetarist 
C)  new classical 
D)  new Keynesian

Question 15

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

Accepted Answer

A)  short-run aggregate supply curve will tend to shift leftward, reflecting the effect of higher wages adjusting in the long run. 
B)  short-run aggregate supply curve will tend to shift leftward, reflecting the effect of lower wages adjusting in the long run. 
C)  aggregate demand curve will tend to shift rightward, reflecting the effect of income adjusting in the long run. 
D)  aggregate demand curve will tend to shift lower, reflecting the effect of price level adjusting in the long run. 
A)  short-run aggregate supply curve will tend to shift leftward, reflecting the effect of higher wages adjusting in the long run. 
B)  short-run aggregate supply curve will tend to shift leftward, reflecting the effect of lower wages adjusting in the long run. 
C)  aggregate demand curve will tend to shift rightward, reflecting the effect of income adjusting in the long run. 
D)  aggregate demand curve will tend to shift lower, reflecting the effect of price level adjusting in the long run.

Question 16

The monetarists school of economics believes that changes in

Accepted Answer

A)  money supply are the primary causes of changes in real GDP. 
B)  the level of government spending are the primary causes of changes in nominal GDP. 
C)  money supply are the primary causes of changes in nominal GDP. 
D)  price level are the primary causes of changes in real GDP. 
A)  money supply are the primary causes of changes in real GDP. 
B)  the level of government spending are the primary causes of changes in nominal GDP. 
C)  money supply are the primary causes of changes in nominal GDP. 
D)  price level are the primary causes of changes in real GDP.

Question 17

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

Accepted Answer

A)  prices and wages are flexible. 
B)  all investment comes from saving. 
C)  self-correction takes a long time. 
D)  equilibrium can be achieved below full employment. 
A)  prices and wages are flexible. 
B)  all investment comes from saving. 
C)  self-correction takes a long time. 
D)  equilibrium can be achieved below full employment.

Question 18

The rational expectations hypothesis suggests that monetary policy, even though it will
affect the aggregate demand curve, might have no effect on real GDP.

Accepted Answer

A) True 
 B)False

Question 19

If the economy's short-run aggregate supply curve is upward sloping, an increase in
Aggregate demand will cause

Accepted Answer

A)  an increase in the price level and employment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and a decrease in employment. 
D)  a decrease in the price level and an increase in employment. 
A)  an increase in the price level and employment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and a decrease in employment. 
D)  a decrease in the price level and an increase in employment.

Question 20

Prior to the Great Depression of the 1930s, macroeconomics was dominated by

Accepted Answer

A)  Keynesian economics. 
B)  monetarism. 
C)  classical economics. 
D)  supply-side economics. 
A)  Keynesian economics. 
B)  monetarism. 
C)  classical economics. 
D)  supply-side economics.

Exam 32: Macroeconomic Policy Around the World

Which of the following is true about the Great Depression?

Supply-side economics is the belief that fiscal policy can be used to stimulate long-run economic growth.

Suppose the U.S. economy experiences stagflation. An expansionary fiscal policy

The General Theory of Employment, Interest, and Money was written by

According to the Keynesian theory of income and employment,

A policy implication of Keynesian economics is that

Monetarists argue that

Monetarists argue that

Figure 17-3 -Refer to Figure 17-3. Suppose the economy is at point a. The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Which of the following statements is true about classical economists?

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

The Smoot-Hawley Tariff Act of 1930

A 2010 survey of economists suggested that the _______ approach is the preferred approach to macroeconomic analysis.

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

The monetarists school of economics believes that changes in

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

The rational expectations hypothesis suggests that monetary policy, even though it will affect the aggregate demand curve, might have no effect on real GDP.

If the economy's short-run aggregate supply curve is upward sloping, an increase in Aggregate demand will cause

Prior to the Great Depression of the 1930s, macroeconomics was dominated by

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