Question 1

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

Question 2

If the economy's short-run aggregate supply curve is upward sloping, an increase in
Aggregate demand will cause

Accepted Answer

A)  an increase in the price level and employment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and a decrease in employment. 
D)  a decrease in the price level and an increase in employment. 
A)  an increase in the price level and employment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and a decrease in employment. 
D)  a decrease in the price level and an increase in employment.

Question 3

When did policy makers in the U.S. first use fiscal policy with the intent of manipulating
Aggregate demand to move the economy to its potential level of real GDP?

Accepted Answer

A)  During the Roosevelt administration 
B)  During the Truman administration 
C)  During the Eisenhower administration 
D)  During the Kennedy administration 
A)  During the Roosevelt administration 
B)  During the Truman administration 
C)  During the Eisenhower administration 
D)  During the Kennedy administration

Question 4

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Accepted Answer

A)  Keynesians favor the use of fiscal policy to bring the economy back to its potential output while monetarists favor the use of monetary policy to bring the economy back to its potential output. 
B)  Keynesians favor active policy intervention to bring the economy back to its potential output while monetarists argue that the uncertain nature of lags renders policy intervention
Destabilizing. 
C)  Keynesians argue that with its shorter and more predictable policy lags, fiscal policy is more effective that monetary policy in bringing the economy back to its potential output, while
Monetarists argue that monetary policy lags are much shorter and more predictable than fiscal policy lags and therefore more effective in bringing the economy back to its potential
Output. 
D)  While both schools favor the use of intervention policies, Keynesians argue that such policies are more effective at eliminating recessionary gaps while Monetarists contend that they are
More effective at eliminating inflationary gaps. 
A)  Keynesians favor the use of fiscal policy to bring the economy back to its potential output while monetarists favor the use of monetary policy to bring the economy back to its potential output. 
B)  Keynesians favor active policy intervention to bring the economy back to its potential output while monetarists argue that the uncertain nature of lags renders policy intervention
Destabilizing. 
C)  Keynesians argue that with its shorter and more predictable policy lags, fiscal policy is more effective that monetary policy in bringing the economy back to its potential output, while
Monetarists argue that monetary policy lags are much shorter and more predictable than fiscal policy lags and therefore more effective in bringing the economy back to its potential
Output. 
D)  While both schools favor the use of intervention policies, Keynesians argue that such policies are more effective at eliminating recessionary gaps while Monetarists contend that they are
More effective at eliminating inflationary gaps.

Question 5

Which of the following statements is true about the Great Depression?

Accepted Answer

A)  The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929. 
B)  The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment. 
C)  The fall in aggregate demand at the start of the Great Depression began with the collapse in investment. 
D)  The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods. 
A)  The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929. 
B)  The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment. 
C)  The fall in aggregate demand at the start of the Great Depression began with the collapse in investment. 
D)  The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods.

Question 6

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. 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 7

Which of the following is true about the classical theory and the monetarist theory with
Regards to the impact of changes in the money supply on the economy?

Accepted Answer

A)  Both the classical theory and monetarism conclude that changes in money supply affect real GDP in the short run and in the long run. 
B)  Both the classical theory and monetarism conclude that changes in money supply do not affect real GDP in the short run but will affect real GDP in the long run. 
C)  Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the long run. 
D)  Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the short run and real GDP in the long run. 
A)  Both the classical theory and monetarism conclude that changes in money supply affect real GDP in the short run and in the long run. 
B)  Both the classical theory and monetarism conclude that changes in money supply do not affect real GDP in the short run but will affect real GDP in the long run. 
C)  Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the long run. 
D)  Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the short run and real GDP in the long run.

Question 8

The hypothesis that assumes that individuals form expectations about the future based on
Available information and that individuals act on that information is called the

Accepted Answer

A)  random expectations theory. 
B)  rational information hypothesis. 
C)  rational expectations hypothesis. 
D)  adaptive expectations hypothesis. 
A)  random expectations theory. 
B)  rational information hypothesis. 
C)  rational expectations hypothesis. 
D)  adaptive expectations hypothesis.

Question 9

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 10

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 11

Consider the following statement: "A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with

Accepted Answer

A)  classical theory. 
B)  Keynesian theory. 
C)  new classical theory. 
D)  monetarist theory. 
A)  classical theory. 
B)  Keynesian theory. 
C)  new classical theory. 
D)  monetarist theory.

Question 12

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Accepted Answer

A)  an increase in the price level and unemployment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and no change in employment. 
D)  a decrease in the price level and no change in employment. 
A)  an increase in the price level and unemployment. 
B)  a decrease in the price level and employment. 
C)  an increase in the price level and no change in employment. 
D)  a decrease in the price level and no change in employment.

Question 13

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression?
I. reduction in wealth
II. reduced consumer confidence
III. tax increases
IV. an expansionary monetary policy that caused inflation

Accepted Answer

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

Question 14

The monetarists school of economics believes that changes in

Accepted Answer

A)  money supply are the primary causes of changes in real GDP. 
B)  the level of government spending are the primary causes of changes in nominal GDP. 
C)  money supply are the primary causes of changes in nominal GDP. 
D)  price level are the primary causes of changes in real GDP. 
A)  money supply are the primary causes of changes in real GDP. 
B)  the level of government spending are the primary causes of changes in nominal GDP. 
C)  money supply are the primary causes of changes in nominal GDP. 
D)  price level are the primary causes of changes in real GDP.

Question 15

In developing his macroeconomic theory, Keynes

Accepted Answer

A)  focused primarily on how potential GDP can change over time. 
B)  focused on how fiscal policy can change potential output. 
C)  was concerned with output gaps and how they could be eliminated. 
D)  was primarily concerned with the supply-side of the economy and how producer behavior led to output gaps. 
A)  focused primarily on how potential GDP can change over time. 
B)  focused on how fiscal policy can change potential output. 
C)  was concerned with output gaps and how they could be eliminated. 
D)  was primarily concerned with the supply-side of the economy and how producer behavior led to output gaps.

Question 16

Keynesian economics was mostly concerned with the short run.

Accepted Answer

A) True 
 B)False

Question 17

Prior to the Great Depression, the dominant economic view held that

Accepted Answer

A)  fiscal policy could effectively eliminate a recessionary gap and return the economy to its potential output. 
B)  economies should be able to reach full employment through a process of self-correction. 
C)  monetary policy should be used to move the economy back to its potential output because it was more immediate than fiscal policy. 
D)  any movement away from potential output was due to either an excess aggregate demand or an excess aggregate supply. 
A)  fiscal policy could effectively eliminate a recessionary gap and return the economy to its potential output. 
B)  economies should be able to reach full employment through a process of self-correction. 
C)  monetary policy should be used to move the economy back to its potential output because it was more immediate than fiscal policy. 
D)  any movement away from potential output was due to either an excess aggregate demand or an excess aggregate supply.

Question 18

New Keynesian economics

Accepted Answer

A)  favor stabilization policies that shift the short-run aggregate supply curve to keep the economy operating close to its potential output. 
B)  advocates policies that increase wage and price flexibility so that the economy can self-correct quickly. 
C)  stresses the stickiness of prices and the need for activist stabilization policies through the aggregate demand management policies to move the economy to its potential output. 
D)  stresses the importance of operating at potential output and with shifting the long-run aggregate supply curve to the right. 
A)  favor stabilization policies that shift the short-run aggregate supply curve to keep the economy operating close to its potential output. 
B)  advocates policies that increase wage and price flexibility so that the economy can self-correct quickly. 
C)  stresses the stickiness of prices and the need for activist stabilization policies through the aggregate demand management policies to move the economy to its potential output. 
D)  stresses the importance of operating at potential output and with shifting the long-run aggregate supply curve to the right.

Question 19

According to new classical economics, short-run stabilization policy works only if it surprises people.

Accepted Answer

A) True 
 B)False

Question 20

A recent survey of economists suggested that the _______ approach is the preferred approach to macroeconomic analysis.

Accepted Answer

A)  Keynesian 
B)  monetarist 
C)  new classical 
D)  new Keynesian 
A)  Keynesian 
B)  monetarist 
C)  new classical 
D)  new Keynesian

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

If the economy's short-run aggregate supply curve is upward sloping, an increase in Aggregate demand will cause

When did policy makers in the U.S. first use fiscal policy with the intent of manipulating Aggregate demand to move the economy to its potential level of real GDP?

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Which of the following statements is true about the Great Depression?

Which of the following is true about the classical theory and the monetarist theory with Regards to the impact of changes in the money supply on the economy?

The hypothesis that assumes that individuals form expectations about the future based on Available information and that individuals act on that information is called the

Milton Friedman was a leader and major proponent of

During the Great Depression, investment plummeted because

Consider the following statement: "A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I. reduction in wealth II. reduced consumer confidence III. tax increases IV. an expansionary monetary policy that caused inflation

The monetarists school of economics believes that changes in

In developing his macroeconomic theory, Keynes

Keynesian economics was mostly concerned with the short run.

Prior to the Great Depression, the dominant economic view held that

New Keynesian economics

According to new classical economics, short-run stabilization policy works only if it surprises people.

A recent survey of economists suggested that the _______ approach is the preferred approach to macroeconomic analysis.

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 policies would supply-side economists favor?

If the economy's short-run aggregate supply curve is upward sloping, an increase in Aggregate demand will cause

When did policy makers in the U.S. first use fiscal policy with the intent of manipulating Aggregate demand to move the economy to its potential level of real GDP?

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Which of the following statements is true about the Great Depression?

Which of the following is true about the classical theory and the monetarist theory with Regards to the impact of changes in the money supply on the economy?

The hypothesis that assumes that individuals form expectations about the future based on Available information and that individuals act on that information is called the

Milton Friedman was a leader and major proponent of

During the Great Depression, investment plummeted because

Consider the following statement: "A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I. reduction in wealth II. reduced consumer confidence III. tax increases IV. an expansionary monetary policy that caused inflation

The monetarists school of economics believes that changes in

In developing his macroeconomic theory, Keynes

Keynesian economics was mostly concerned with the short run.

Prior to the Great Depression, the dominant economic view held that

New Keynesian economics

According to new classical economics, short-run stabilization policy works only if it surprises people.

A recent survey of economists suggested that the _______ approach is the preferred approach to macroeconomic analysis.

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