Question 1

Writing in 1752, David Hume's essay, "Of Money,"

Accepted Answer

A)  showed that changes in the money supply were unrelated to short-run fluctuations in output. 
B)  suggested that an increase in the money supply would be favorable to industry in the long-run. 
C)  echoed John Maynard Keynes' view that sticky prices would lead to short-run deviations of output from the level of potential real GDP. 
D)  was unable to unravel the nature and role of money in the economy because he ignored sticky prices. 
A)  showed that changes in the money supply were unrelated to short-run fluctuations in output. 
B)  suggested that an increase in the money supply would be favorable to industry in the long-run. 
C)  echoed John Maynard Keynes' view that sticky prices would lead to short-run deviations of output from the level of potential real GDP. 
D)  was unable to unravel the nature and role of money in the economy because he ignored sticky prices.

Question 2

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

Accepted Answer

A)  an administrative lag. 
B)  an impact lag. 
C)  a recognition lag. 
D)  an implementation lag. 
A)  an administrative lag. 
B)  an impact lag. 
C)  a recognition lag. 
D)  an implementation lag.

Question 3

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 4

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Accepted Answer

A)  Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies. 
B)  aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output. 
C)  aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction. 
D)  fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure. 
A)  Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies. 
B)  aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output. 
C)  aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction. 
D)  fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure.

Question 5

Prior to the Great Depression of the 1930s, macroeconomics was dominated by

Accepted Answer

A)  Keynesian economics. 
B)  monetarism. 
C)  classical economics. 
D)  supply-side economics. 
A)  Keynesian economics. 
B)  monetarism. 
C)  classical economics. 
D)  supply-side economics.

Question 6

New classical economics

Accepted Answer

A)  differs from classical economics in that the latter focuses on the determination of long-run aggregate supply while the former focus on the determination of short-run aggregate supply. 
B)  is similar to classical economics in that both theories incorporate expectations in their analysis of the economy in the long-run. 
C)  differs from classical economics in that the latter focuses on producers' expectations only while the latter also includes consumers' expectations in the determination of long-run macroeconomic equilibrium. 
D)  is similar to classical economics in that both theories focus on the determination of long-run aggregate supply and the economy's ability to reach this level of output quickly. 
A)  differs from classical economics in that the latter focuses on the determination of long-run aggregate supply while the former focus on the determination of short-run aggregate supply. 
B)  is similar to classical economics in that both theories incorporate expectations in their analysis of the economy in the long-run. 
C)  differs from classical economics in that the latter focuses on producers' expectations only while the latter also includes consumers' expectations in the determination of long-run macroeconomic equilibrium. 
D)  is similar to classical economics in that both theories focus on the determination of long-run aggregate supply and the economy's ability to reach this level of output quickly.

Question 7

The General Theory of Employment, Interest, and Money was written by

Accepted Answer

A)  Robert Lucas. 
B)  David Ricardo. 
C)  John Maynard Keynes. 
D)  Thomas Malthus. 
A)  Robert Lucas. 
B)  David Ricardo. 
C)  John Maynard Keynes. 
D)  Thomas Malthus.

Question 8

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.

Accepted Answer

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

Question 9

In the new classical view,

Accepted Answer

A)  a change in the money supply will affect real GDP only if people anticipate the policy change. 
B)  monetary policy can never change real GDP. 
C)  using monetary policy will change real GDP only if the policy takes people by surprise. 
D)  fiscal policy has more chance of success than monetary policy. 
A)  a change in the money supply will affect real GDP only if people anticipate the policy change. 
B)  monetary policy can never change real GDP. 
C)  using monetary policy will change real GDP only if the policy takes people by surprise. 
D)  fiscal policy has more chance of success than monetary policy.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Keynes's theory of macroeconomics rejects classical macroeconomists' assumptions that

Accepted Answer

A)  prices and wages are flexible. 
B)  all investment comes from saving. 
C)  self-correction takes a long time. 
D)  equilibrium can be achieved below full employment. 
A)  prices and wages are flexible. 
B)  all investment comes from saving. 
C)  self-correction takes a long time. 
D)  equilibrium can be achieved below full employment.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Monetarists argue that impact lags associated with changes in the money supply are long and variable.

Accepted Answer

A) True 
 B)False

Question 14

According to the Keynesian theory of income and employment,

Accepted Answer

A)  the economy automatically tends toward equilibrium at the level of full employment. 
B)  the economy never tends toward equilibrium. 
C)  the economy may be in equilibrium at less than full employment. 
D)  the economy's level of employment is unrelated to its level of income. 
A)  the economy automatically tends toward equilibrium at the level of full employment. 
B)  the economy never tends toward equilibrium. 
C)  the economy may be in equilibrium at less than full employment. 
D)  the economy's level of employment is unrelated to its level of income.

Question 15

Use the following to answer questions.
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments) Suppose the economy is at point a. The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Accepted Answer

A)  point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B)  point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C)  point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D)  point a to point c whereas new Keynesian economics suggests that it will move point a to point d. 
A)  point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B)  point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C)  point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D)  point a to point c whereas new Keynesian economics suggests that it will move point a to point d.

Question 16

Keynes argued that the surest way to bring the economy out of the Great Depression was to

Accepted Answer

A)  rely on expansionary monetary policy. 
B)  use expansionary fiscal policy. 
C)  impose wage controls to prevent drastic decreases in disposable income. 
D)  leave the economy alone and flexible wages and prices would eventually lead to increases in income and employment. 
A)  rely on expansionary monetary policy. 
B)  use expansionary fiscal policy. 
C)  impose wage controls to prevent drastic decreases in disposable income. 
D)  leave the economy alone and flexible wages and prices would eventually lead to increases in income and employment.

Question 17

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the
Aggregate demand curve would cause

Accepted Answer

A)  a decrease in the level of income. 
B)  an increase in the unemployment level. 
C)  a change in the long-run aggregate supply curve. 
D)  an increase in employment, production, and income. 
A)  a decrease in the level of income. 
B)  an increase in the unemployment level. 
C)  a change in the long-run aggregate supply curve. 
D)  an increase in employment, production, and income.

Question 18

Which of the following is true about the Great Depression?

Accepted Answer

A)  Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B)  Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C)  The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D)  The Great Depression could be explained by classical economic theory. 
A)  Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B)  Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C)  The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D)  The Great Depression could be explained by classical economic theory.

Question 19

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 20

An important distinction between the classical and Keynesian view of the economy is that

Accepted Answer

A)  Keynes stressed the supply side of an economy while classical economists stressed the demand side of the economy. 
B)  classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by shifts in aggregate demand. 
C)  Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy. 
D)  classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by wage and price rigidities. 
A)  Keynes stressed the supply side of an economy while classical economists stressed the demand side of the economy. 
B)  classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by shifts in aggregate demand. 
C)  Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy. 
D)  classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by wage and price rigidities.

Writing in 1752, David Hume's essay, "Of Money,"

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

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

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Prior to the Great Depression of the 1930s, macroeconomics was dominated by

New classical economics

The General Theory of Employment, Interest, and Money was written by

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.

In the new classical view,

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

Keynes's theory of macroeconomics rejects classical macroeconomists' assumptions that

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

Monetarists argue that impact lags associated with changes in the money supply are long and variable.

According to the Keynesian theory of income and employment,

Use the following to answer questions. Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Suppose the economy is at point a. The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Keynes argued that the surest way to bring the economy out of the Great Depression was to

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the Aggregate demand curve would cause

Which of the following is true about the Great Depression?

New classical economics contends that policy activism is

An important distinction between the classical and Keynesian view of the economy is that

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

Writing in 1752, David Hume's essay, "Of Money,"

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

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

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Prior to the Great Depression of the 1930s, macroeconomics was dominated by

New classical economics

The General Theory of Employment, Interest, and Money was written by

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.

In the new classical view,

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

Keynes's theory of macroeconomics rejects classical macroeconomists' assumptions that

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

Monetarists argue that impact lags associated with changes in the money supply are long and variable.

According to the Keynesian theory of income and employment,

Use the following to answer questions. Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Suppose the economy is at point a. The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Keynes argued that the surest way to bring the economy out of the Great Depression was to

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the Aggregate demand curve would cause

Which of the following is true about the Great Depression?

New classical economics contends that policy activism is

An important distinction between the classical and Keynesian view of the economy is that

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