Exam 32: Macroeconomic Policy Around the World

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

The experience of the Great Depression led to the widespread acceptance of classical economics.

In the late 1970s, oil prices rose sharply and at the same time, U.S. policymakers pursued expansionary fiscal and monetary policies. As a result, real GDP stayed at potential output, while the implicit price deflator jumped 8.1%. If the Fed's goal was to reduce inflation, which of the following would also occur?

Prior to the Great Depression, the dominant economic view held that

In developing his macroeconomic theory, Keynes

Classical economists believed I. there could be temporary periods of unemployment. II. emphasis should be placed on the long run, and in the long run all would be set right Because of the smooth functioning of the price system. III. the Great Depression would be a short-run aberration.

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. The below potential output level of Y₂ will exist as long as

In the new classical view,

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

In 1965 during the Johnson administration, the U.S. economy was headed toward an inflationary gap. Which of the following policies would an economist recommend?

In the 1970s the U.S. economy experienced a novel set of macroeconomic outcomes: rising Price level and falling output. This experience led policymakers to

New classical theory asserts that, because people have rational expectations, if a policy of reducing the money supply is used

David Ricardo's work is associated with _______ economics.

In 2009, the Obama administration advocated and Congress passed a massive spending and tax relief package of about $800 billion to stimulate aggregate demand. This policy would be favored by

Classical economics is based primarily on the works of John Maynard Keynes.

Which of the following are reasons why monetarists oppose activist stabilization policies? I. Monetary policy lags are so long and variable that trying to stabilize the economy using Monetary policy can be destabilizing. II. Monetary policy affects a nation's currency exchange rate and affects the nation's competitiveness in the global market. III. Because of crowding-out effects, fiscal policy has no effect on GDP. IV. Fiscal policies must be financed by government borrowing or tax increases, both of which affect aggregate demand negatively.

Figure 17-1 -Refer to Figure 17-1. Suppose the U.S. economy is at point j. With the onset of World War II, expansionary fiscal policies forced by the war pushed into an inflationary gap. Which of the following best illustrates this event?

The worst economic downturn in the United States in the twentieth century occurred during the 1930s.

New Keynesian economics

One distinguishing feature of new Keynesian economics (from earlier schools of thought) is the greater use of microeconomic analysis in macroeconomic analysis.