Exam 17: A Brief History of Macroeconomic Thought and Policy

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.

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?

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

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?

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

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

When consumers and producers operate under rational expectations,

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

David Ricardo's work is associated with _______ economics.

The body of economic thought associated with 19th century economist

Use the following to answer questions . Exhibit: Responses to a Decrease in Aggregate Demand -(Exhibit: Responses to a Decrease in Aggregate Demand) 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

According to early classical macroeconomics, unemployment

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

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

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

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.

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

The monetarist school of economics believes that changes in the money supply are the primary causes of changes in nominal GDP.

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

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