Question 1

According to early classical macroeconomics, unemployment

Accepted Answer

A)  can persist for long periods of time, because wages are inflexible. 
B)  could not prevail for long periods of time, because wages are flexible. 
C)  can never occur. 
D)  could not prevail for long, because the government intervenes to eliminate unemployment. 
A)  can persist for long periods of time, because wages are inflexible. 
B)  could not prevail for long periods of time, because wages are flexible. 
C)  can never occur. 
D)  could not prevail for long, because the government intervenes to eliminate unemployment.

Question 2

Milton Friedman was a leader and major proponent of

Accepted Answer

A)  monetarism. 
B)  classical economics. 
C)  Keynesian economics. 
D)  rational expectations theory. 
A)  monetarism. 
B)  classical economics. 
C)  Keynesian economics. 
D)  rational expectations theory.

Question 3

Figure 17-1  
-Refer to Figure 17-1. Which point best illustrates where the U.S. economy was just prior to the Great Depression?

Accepted Answer

A)  point j 
B)  point k 
C)  point m 
D)  point n 
A)  point j 
B)  point k 
C)  point m 
D)  point n

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

During the Great Depression, investment plummeted because

Accepted Answer

A)  government policies related to investment tax credit changed the incentives for firms to undertake investment spending. 
B)  the investment boom of the 1920s had left firms with an expanded stock of capital and as the capital stock approached its desired level, firms did not need as much new capital. 
C)  more and more firms invest abroad rather than in the domestic economy to cut production costs. 
D)  consumers were not spending enough to justify expenditures on investment. 
A)  government policies related to investment tax credit changed the incentives for firms to undertake investment spending. 
B)  the investment boom of the 1920s had left firms with an expanded stock of capital and as the capital stock approached its desired level, firms did not need as much new capital. 
C)  more and more firms invest abroad rather than in the domestic economy to cut production costs. 
D)  consumers were not spending enough to justify expenditures on investment.

Question 6

Figure 17-3  
-Refer to Figure 17-3. Suppose the economy is at point c. A Keynesian economist would advocate

Accepted Answer

A)  allowing the economy's self-correcting mechanism to move the economy to point a. 
B)  pursuing expansionary fiscal policies to move the economy to point a. 
C)  pursuing expansionary fiscal policies to move the economy to point b. 
D)  pursuing expansionary fiscal policies to move the economy to point d. 
A)  allowing the economy's self-correcting mechanism to move the economy to point a. 
B)  pursuing expansionary fiscal policies to move the economy to point a. 
C)  pursuing expansionary fiscal policies to move the economy to point b. 
D)  pursuing expansionary fiscal policies to move the economy to point d.

Question 7

During the 1960s, Keynesian economic policies led to lower unemployment rates and
higher prices.

Accepted Answer

A) True 
 B)False

Question 8

The Case in Point titled "Tough Medicine" stated that the Keynesian prescription for an inflationary gap was to

Accepted Answer

A)  apply contractionary fiscal or monetary policy, or both. 
B)  combine contractionary fiscal policy with expansionary monetary policy. 
C)  combine expansionary fiscal policy with contractionary monetary policy. 
D)  decrease the money supply in order to shift the SRAS curve to the left. 
A)  apply contractionary fiscal or monetary policy, or both. 
B)  combine contractionary fiscal policy with expansionary monetary policy. 
C)  combine expansionary fiscal policy with contractionary monetary policy. 
D)  decrease the money supply in order to shift the SRAS curve to the left.

Question 9

Monetarists contend that a consistent relationship exists between changes in the money
supply and changes in nominal GDP.

Accepted Answer

A) True 
 B)False

Question 10

Figure 17-1  
-Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply. Suppose the economy moved to a short-run equilibrium at point k. Over time, the economy moved to point j. What could have caused the economy to move to point j?

Accepted Answer

A)  Falling output prices caused the aggregate supply to shift from SRAS1 to SRAS2. 
B)  Falling nominal wages caused the aggregate supply to shift from SRAS1 to SRAS2. 
C)  Expansionary fiscal policies caused the aggregate supply to shift from SRAS1 to SRAS2. 
D)  A decline in the demand for U.S. goods by foreign countries aggregate supply to shift from SRAS1 to SRAS2. 
A)  Falling output prices caused the aggregate supply to shift from SRAS1 to SRAS2. 
B)  Falling nominal wages caused the aggregate supply to shift from SRAS1 to SRAS2. 
C)  Expansionary fiscal policies caused the aggregate supply to shift from SRAS1 to SRAS2. 
D)  A decline in the demand for U.S. goods by foreign countries aggregate supply to shift from SRAS1 to SRAS2.

Question 11

New classical economics contends that policy activism is

Accepted Answer

A)  not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B)  not warranted; the public defeats discretionary policies because everyone expects them, and therefore, their effectiveness is thwarted. 
C)  warranted, because discretionary policies have a strong effect on real output. 
D)  warranted, because expectations are rational only in the short run. 
A)  not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B)  not warranted; the public defeats discretionary policies because everyone expects them, and therefore, their effectiveness is thwarted. 
C)  warranted, because discretionary policies have a strong effect on real output. 
D)  warranted, because expectations are rational only in the short run.

Question 12

The economic theory based on an analysis of individual maximizing choices is called

Accepted Answer

A)  monetarism. 
B)  new classical economics. 
C)  Keynesian economics. 
D)  business cycle theory. 
A)  monetarism. 
B)  new classical economics. 
C)  Keynesian economics. 
D)  business cycle theory.

Question 13

According to new classical economics, individuals will respond to expansionary monetary
Policy by

Accepted Answer

A)  incorrectly forecasting what will happen to the price level and employment. 
B)  predicting no change in the rate of inflation because they adjust quickly. 
C)  predicting a lower rate of inflation and revising their expectations about future prices accordingly. 
D)  predicting a higher rate of inflation and revising their expectations about future prices. 
A)  incorrectly forecasting what will happen to the price level and employment. 
B)  predicting no change in the rate of inflation because they adjust quickly. 
C)  predicting a lower rate of inflation and revising their expectations about future prices accordingly. 
D)  predicting a higher rate of inflation and revising their expectations about future prices.

Question 14

During the 1970s when the U.S. experienced rising inflation and unemployment, economists began to reconsider the significance of aggregate supply as well.

Accepted Answer

A) True 
 B)False

Question 15

John Maynard Keynes argued that _______

Accepted Answer

A)  flexibility in wages and prices could block adjustments to full employment. 
B)  stickiness in wages and prices could block adjustments to full employment. 
C)  wage and price rigidities were caused by producer and consumer expectations about future prices. 
D)  wage and price rigidities could be eliminated by government wage and price setting. 
A)  flexibility in wages and prices could block adjustments to full employment. 
B)  stickiness in wages and prices could block adjustments to full employment. 
C)  wage and price rigidities were caused by producer and consumer expectations about future prices. 
D)  wage and price rigidities could be eliminated by government wage and price setting.

Question 16

The body of economic thought associated with David Ricardo is called new classical
economics.

Accepted Answer

A) True 
 B)False

Question 17

In the early 1990s, although the U.S. economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason?

Accepted Answer

A)  Policymakers believed that contractionary fiscal policies are more likely to increase employment because inflation would be lower and therefore producers could pay lower wages. 
B)  Congress recognized that fiscal policy lags rendered fiscal policy ineffective. 
C)  Congress was concerned that expansionary policies would increase the government budget deficit. 
D)  Congress believed that the economy's self-correcting mechanism was better able to eliminate output gaps than fiscal policies. 
A)  Policymakers believed that contractionary fiscal policies are more likely to increase employment because inflation would be lower and therefore producers could pay lower wages. 
B)  Congress recognized that fiscal policy lags rendered fiscal policy ineffective. 
C)  Congress was concerned that expansionary policies would increase the government budget deficit. 
D)  Congress believed that the economy's self-correcting mechanism was better able to eliminate output gaps than fiscal policies.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The recession in real GDP in 1970 during the Nixon administration

Accepted Answer

A)  did not accord with the Keynesian theory because the price level had risen sharply; in the Keynesian model, prices fell when real GDP and employment were falling. 
B)  reinforced the Keynesian theory that prices fell when real GDP and employment were falling. 
C)  did not accord with the Keynesian theory because expansionary fiscal policies resulted in deflation; in the Keynesian model, prices rose when expansionary fiscal policies were administered to eliminate a recessionary gap. 
D)  reinforced the Keynesian theory that fiscal policies were more effective than monetary policies in reducing output gaps. 
A)  did not accord with the Keynesian theory because the price level had risen sharply; in the Keynesian model, prices fell when real GDP and employment were falling. 
B)  reinforced the Keynesian theory that prices fell when real GDP and employment were falling. 
C)  did not accord with the Keynesian theory because expansionary fiscal policies resulted in deflation; in the Keynesian model, prices rose when expansionary fiscal policies were administered to eliminate a recessionary gap. 
D)  reinforced the Keynesian theory that fiscal policies were more effective than monetary policies in reducing output gaps.

Question 20

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

Accepted Answer

A)  Lowering taxes to increase work effort and investment tax credits to stimulate investments 
B)  Lowering taxes to increase work effort and lowering interest rates to stimulate investment 
C)  Eliminating welfare programs to increase employment and investment tax credits to encourage firms to provide on-the-job training programs 
D)  Investment tax credits and increasing government spending on applied research to increase productivity 
A)  Lowering taxes to increase work effort and investment tax credits to stimulate investments 
B)  Lowering taxes to increase work effort and lowering interest rates to stimulate investment 
C)  Eliminating welfare programs to increase employment and investment tax credits to encourage firms to provide on-the-job training programs 
D)  Investment tax credits and increasing government spending on applied research to increase productivity

Exam 32: Macroeconomic Policy Around the World

According to early classical macroeconomics, unemployment

Milton Friedman was a leader and major proponent of

Figure 17-1 -Refer to Figure 17-1. Which point best illustrates where the U.S. economy was just prior to the Great Depression?

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

During the Great Depression, investment plummeted because

Figure 17-3 -Refer to Figure 17-3. Suppose the economy is at point c. A Keynesian economist would advocate

During the 1960s, Keynesian economic policies led to lower unemployment rates and higher prices.

The Case in Point titled "Tough Medicine" stated that the Keynesian prescription for an inflationary gap was to

Monetarists contend that a consistent relationship exists between changes in the money supply and changes in nominal GDP.

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply. Suppose the economy moved to a short-run equilibrium at point k. Over time, the economy moved to point j. What could have caused the economy to move to point j?

New classical economics contends that policy activism is

The economic theory based on an analysis of individual maximizing choices is called

According to new classical economics, individuals will respond to expansionary monetary Policy by

During the 1970s when the U.S. experienced rising inflation and unemployment, economists began to reconsider the significance of aggregate supply as well.

John Maynard Keynes argued that _______

The body of economic thought associated with David Ricardo is called new classical economics.

In the early 1990s, although the U.S. economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason?

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

The recession in real GDP in 1970 during the Nixon administration

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

Welcome to Economics

Demand and Supply

Labor and Financial Markets

Elasticity

Consumer Choices

Cost and Industry Structure

Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly and Antitrust Policy

Environmental Protection and Negative Externalities

Positive Externalities and Public Goods

Poverty and Economic Inequality

Issues in Labor Markets: Unions, Discrimination, Immigration

Information, Risk, and Insurance

Financial Markets

Public Economy

The Macroeconomic Perspective

Economic Growth

Unemployment

Inflation

The International Trade and Capital Flows

The Aggregate Demandaggregate Supply Model

The Keynesian Perspective

The Neoclassical Perspective

Money and Banking

Monetary Policy and Bank Regulation

Exchange Rates and International Capital Flows

Government Budgets and Fiscal Policy

The Impacts of Government Borrowing

International Trade

Globalization and Protectionism

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