Exam 17: A Brief History of Macroeconomic Thought and Policy

If prices and wages are sticky, a decrease in aggregate demand will cause

The theory that argues most strongly for countercyclical policy activism is

Monetarists argue that

New Keynesian economics is built on I. the Keynesian approach II. the monetarist approach III. the new classical approach

The theory that dominated macroeconomic thinking in the 1960s was

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I. reduction in wealth II. reduction in net exports III. a financial crisis that reduced money supply IV. tax increases

The Smoot-Hawley Tariff Act of 1930

Compare and contrast the classical and Keynesian views of aggregate demand and aggregate supply.

Monetarists argue that

During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?

Suppose the economy is initially in long-run equilibrium. Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies. Which of the following will occur as a result of these two events, given that supply-side effects dominate demand-side effects?

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

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

Use the following to answer questions. Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Suppose the economy is at point c. A Keynesian economist would advocate

Who was the economist who laid the foundations for classical economics?

In the 1970s, the U.S. economy experienced both inflation and unemployment. This led economists to recognize that I. stabilization was a much more difficult task than many economists anticipated. II. the Keynesian doctrine correctly asserts that reducing inflation and unemployment can be addressed by fiscal policies. III. shifts in aggregate demand could frustrate policymaking efforts whereas shifts in the short-run aggregate supply were more easily addressed.

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

In 1979, the CPI rose 13.5%, the highest inflation rate recorded in the twentieth century in the U.S. Public opinion polls in 1979 consistently showed that most people regarded inflation as the leading problem facing the U.S. How did the Fed respond to this situation?

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

A fundamental feature of early classical macroeconomics is that