Question 1

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 2

According to Keynes, the remedy for a recessionary gap is

Accepted Answer

A)  to subsidize big business. 
B)  to increase aggregate supply. 
C)  to boost aggregate demand. 
D)  to lower business taxes. 
A)  to subsidize big business. 
B)  to increase aggregate supply. 
C)  to boost aggregate demand. 
D)  to lower business taxes.

Question 3

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 4

According to Keynesian theory,

Accepted Answer

A)  sticky prices and wages do not have an effect on aggregate expenditures. 
B)  because of sticky prices and wages, changes in total spending have the biggest impact on output and employment. 
C)  wage and price stickiness cause output and employment to remain close to their full employment levels, even when total spending changes. 
D)  wages and prices fall in the early stages of a recession even when total spending is declining. 
A)  sticky prices and wages do not have an effect on aggregate expenditures. 
B)  because of sticky prices and wages, changes in total spending have the biggest impact on output and employment. 
C)  wage and price stickiness cause output and employment to remain close to their full employment levels, even when total spending changes. 
D)  wages and prices fall in the early stages of a recession even when total spending is declining.

Question 5

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 6

The close relationship between M2 and nominal GDP in the 1960s and 1970s vanished from the 1980s through 2015. Which of the following contributed to this breakdown?
I. deregulation of the banking industry
II. introduction of new financial products (not included in M2) which allowed people to transfer funds into their checking accounts as and when needed
III. monetary policy lags

Accepted Answer

A)  I and II only 
B)  II only 
C)  II and III only 
D)  I, II, and III 
A)  I and II only 
B)  II only 
C)  II and III only 
D)  I, II, and III

Question 7

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) 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 8

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  aggregate demand was more important than aggregate supply in determining the economy's output level. 
B)  acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance. 
C)  conclude that fiscal policy alone was enough to stabilize the economy. 
D)  conclude that being a vital input, oil prices should be controlled by the government. 
A)  aggregate demand was more important than aggregate supply in determining the economy's output level. 
B)  acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance. 
C)  conclude that fiscal policy alone was enough to stabilize the economy. 
D)  conclude that being a vital input, oil prices should be controlled by the government.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Suppose the economy experiences a recessionary gap. How does the new classical approach to macroeconomic policy (to eliminate the gap) differ from the new Keynesian approach? Illustrate your answer with an aggregate demand-aggregate supply graph.

Accepted Answer

The new classical approach to macroecono

Question 12

Monetarists conclude that the primary determinant of changes in nominal GDP is

Accepted Answer

A)  money growth. 
B)  growth in aggregate demand. 
C)  growth in aggregate supply. 
D)  the inflation rate. 
A)  money growth. 
B)  growth in aggregate demand. 
C)  growth in aggregate supply. 
D)  the inflation rate.

Question 13

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply. As a result, the economy moved to

Accepted Answer

A)  point k creating a recessionary gap equal to (Ym - Yk). 
B)  point k creating a recessionary gap equal to (YP - Yk). 
C)  point j creating a recessionary gap equal to (YP - Yj). 
D)  point j creating a recessionary gap equal to (Yn - Yj). 
A)  point k creating a recessionary gap equal to (Ym - Yk). 
B)  point k creating a recessionary gap equal to (YP - Yk). 
C)  point j creating a recessionary gap equal to (YP - Yj). 
D)  point j creating a recessionary gap equal to (Yn - Yj).

Question 14

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 15

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

Accepted Answer

A)  investment 
B)  consumption 
C)  government purchases 
D)  transfer payments 
A)  investment 
B)  consumption 
C)  government purchases 
D)  transfer payments

Question 16

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) 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?

Accepted Answer

A)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - YP). 
B)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym - YP). 
C)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym - Yj). 
D)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - Yj). 
A)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - YP). 
B)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym - YP). 
C)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym - Yj). 
D)  expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - Yj).

Question 17

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 18

In the U.S., the Great Recession was fought with traditional monetary and fiscal policies,

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following statements is true about classical economists?

According to Keynes, the remedy for a recessionary gap is

The recession in real GDP in 1970 during the Nixon administration

According to Keynesian theory,

A policy implication of Keynesian economics is that

Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) Which point best illustrates where the U.S. economy was just prior to the Great Depression?

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

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

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

Suppose the economy experiences a recessionary gap. How does the new classical approach to macroeconomic policy (to eliminate the gap) differ from the new Keynesian approach? Illustrate your answer with an aggregate demand-aggregate supply graph.

Monetarists conclude that the primary determinant of changes in nominal GDP is

Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply. As a result, the economy moved to

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

Which component of aggregate demand plunged sharply at the start of 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.

In the U.S., the Great Recession was fought with traditional monetary and fiscal policies,

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.

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

Inequality, Poverty, and Discrimination

Filters

Exam 17: A Brief History of Macroeconomic Thought and Policy

Which of the following statements is true about classical economists?

According to Keynes, the remedy for a recessionary gap is

The recession in real GDP in 1970 during the Nixon administration

According to Keynesian theory,

A policy implication of Keynesian economics is that

Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) Which point best illustrates where the U.S. economy was just prior to the Great Depression?

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

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

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

Suppose the economy experiences a recessionary gap. How does the new classical approach to macroeconomic policy (to eliminate the gap) differ from the new Keynesian approach? Illustrate your answer with an aggregate demand-aggregate supply graph.

Monetarists conclude that the primary determinant of changes in nominal GDP is

Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply. As a result, the economy moved to

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

Which component of aggregate demand plunged sharply at the start of 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.

In the U.S., the Great Recession was fought with traditional monetary and fiscal policies,

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.

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

Inequality, Poverty, and Discrimination

Filters