Question 1

Explain what is meant by liquidity preference.

Accepted Answer

Liquidity preference is the phrase Keynes gave to money demand. Through this relation, monetary policy can affect interest rates and aggregate demand.

Question 2

Which of the following argued that the Great Depression was caused by monetary factors?

Accepted Answer

A)  Friedman and Schwartz. 
B)  Tobin and Jorgenson. 
C)  Lucas and Sargent. 
D)  Modigliani and Friedman. 
E)  Hicks and Hansen. 
A)  Friedman and Schwartz. 
B)  Tobin and Jorgenson. 
C)  Lucas and Sargent. 
D)  Modigliani and Friedman. 
E)  Hicks and Hansen. A

Question 3

Liquidity preference refers to:

Accepted Answer

A)  the controversy sparked by the Lucas critique. 
B)  real business cycle theorists' explanations for stagflation. 
C)  Keynes' name for the demand for money. 
D)  the "random walk" behaviour of consumption spending. 
E)  monetarists explanations for stagflation. 
A)  the controversy sparked by the Lucas critique. 
B)  real business cycle theorists' explanations for stagflation. 
C)  Keynes' name for the demand for money. 
D)  the "random walk" behaviour of consumption spending. 
E)  monetarists explanations for stagflation. C

Question 4

A core belief of modern macroeconomics is that in the long run:

Accepted Answer

A)  a change in money growth will affect the composition of output, but not its level. 
B)  a change in money growth will affect the level of output, but not its composition. 
C)  greater saving will result in greater output. 
D)  a change in fiscal policy will not affect the composition of output. 
E)  output can deviate permanently from its natural level. 
A)  a change in money growth will affect the composition of output, but not its level. 
B)  a change in money growth will affect the level of output, but not its composition. 
C)  greater saving will result in greater output. 
D)  a change in fiscal policy will not affect the composition of output. 
E)  output can deviate permanently from its natural level.

Question 5

Which of the following led a strong attack against mainstream macroeconomists during the 1970s?

Accepted Answer

A)  Modigliani and Friedman. 
B)  Friedman and Phelps. 
C)  Lucas, Barro, and Sargent. 
D)  Tobin and Jorgenson. 
E)  Hicks and Hansen. 
A)  Modigliani and Friedman. 
B)  Friedman and Phelps. 
C)  Lucas, Barro, and Sargent. 
D)  Tobin and Jorgenson. 
E)  Hicks and Hansen.

Question 6

During the 1970s and 1980s, macroeconomists were busy integrating the insights of which of the following into their ideas about the economy?

Accepted Answer

A)  Rational expectations. 
B)  Real business cycle theory. 
C)  Classical macroeconomics. 
D)  Keynesian theory. 
E)  Supply- side economics. 
A)  Rational expectations. 
B)  Real business cycle theory. 
C)  Classical macroeconomics. 
D)  Keynesian theory. 
E)  Supply- side economics.

Question 7

If the IS curve is relatively steep, then:

Accepted Answer

A)  there can be no long- run tradeoff between inflation and unemployment. 
B)  monetary policy cannot be very effective in changing GDP. 
C)  budget deficits will not affect future capital accumulation. 
D)  Ricardian equivalence most likely holds. 
E)  rational expectations theory is probably correct. 
A)  there can be no long- run tradeoff between inflation and unemployment. 
B)  monetary policy cannot be very effective in changing GDP. 
C)  budget deficits will not affect future capital accumulation. 
D)  Ricardian equivalence most likely holds. 
E)  rational expectations theory is probably correct.

Question 8

Discuss the various strands of research on the financial system and intermediation that researchers have sought to integrate into consistent macroeconomic models since the crisis.

Accepted Answer

Diamond and Dybvig showed that illiquid

Question 9

The staggering of wage and price decisions suggests that:

Accepted Answer

A)  people do possess rational expectations. 
B)  the Lucas critique is entirely correct. 
C)  the economy will adjust slowly to shocks even if people possess rational expectations. 
D)  people do not possess rational expectations. 
E)  real business cycle theory is correct. 
A)  people do possess rational expectations. 
B)  the Lucas critique is entirely correct. 
C)  the economy will adjust slowly to shocks even if people possess rational expectations. 
D)  people do not possess rational expectations. 
E)  real business cycle theory is correct.

Question 10

Which of the following is a source of intellectual failure on the part of macroeconomics in predicting the crisis?

Accepted Answer

A)  Economists did not think financial crises could happen. 
B)  Some economists sounded the alarm but were ignored. 
C)  Financial intermediation is important to finance not economics. 
D)  The financial system is too complex to be included in macroeconomic models. 
E)  A lack of focus on the role of financial institutions in the economy. 
A)  Economists did not think financial crises could happen. 
B)  Some economists sounded the alarm but were ignored. 
C)  Financial intermediation is important to finance not economics. 
D)  The financial system is too complex to be included in macroeconomic models. 
E)  A lack of focus on the role of financial institutions in the economy.

Question 11

Which of the following is an implication of rational expectations theory?

Accepted Answer

A)  Macroeconometric models based on past behaviour will not be very useful in formulating policy. 
B)  Business cycles almost always result from a shift in aggregate demand. 
C)  Wages and prices are set almost entirely at random, so it is pointless to try to model their behaviour. 
D)  Deviations of output from the natural rate are likely to be serious and long- lived. 
E)  The economy is like a complex machine that needs to be optimally controlled with the proper policy. 
A)  Macroeconometric models based on past behaviour will not be very useful in formulating policy. 
B)  Business cycles almost always result from a shift in aggregate demand. 
C)  Wages and prices are set almost entirely at random, so it is pointless to try to model their behaviour. 
D)  Deviations of output from the natural rate are likely to be serious and long- lived. 
E)  The economy is like a complex machine that needs to be optimally controlled with the proper policy.

Question 12

Explain several of the key contributions of Keynes.

Accepted Answer

Answers should include topics like: the

Question 13

Which of the following was not part of the neoclassical synthesis?

Accepted Answer

A)  Aggregate demand. 
B)  The LM curve. 
C)  The IS curve. 
D)  Rational expectations. 
E)  The Phillips curve. 
A)  Aggregate demand. 
B)  The LM curve. 
C)  The IS curve. 
D)  Rational expectations. 
E)  The Phillips curve.

Question 14

"Effective demand" represents which of the following?

Accepted Answer

A)  The demand for labour. 
B)  Money demand. 
C)  Demand for exports. 
D)  Domestic demand. 
E)  Aggregate demand. 
A)  The demand for labour. 
B)  Money demand. 
C)  Demand for exports. 
D)  Domestic demand. 
E)  Aggregate demand.

Question 15

The new classical interpretation of the economy suggests that:

Accepted Answer

A)  expansions will not occur. 
B)  output is always above the natural level. 
C)  output is always equal to the natural level. 
D)  recessions will not occur. 
E)  output is always below the natural level. 
A)  expansions will not occur. 
B)  output is always above the natural level. 
C)  output is always equal to the natural level. 
D)  recessions will not occur. 
E)  output is always below the natural level.

Question 16

The neoclassical synthesis:

Accepted Answer

A)  held that econometric models of the economy could not be used to predict the future. 
B)  was the dominant school of thought among economists in the 1950s and 1960s. 
C)  held that economy always operated at or very near the natural rate of unemployment. 
D)  was a name coined by Keynes himself for his new theories. 
E)  rejected virtually all of Keynes' insights. 
A)  held that econometric models of the economy could not be used to predict the future. 
B)  was the dominant school of thought among economists in the 1950s and 1960s. 
C)  held that economy always operated at or very near the natural rate of unemployment. 
D)  was a name coined by Keynes himself for his new theories. 
E)  rejected virtually all of Keynes' insights.

Question 17

What are some of the lessons in policymaking and macroeconomic analysis that have emerged after the crisis? Discuss.

Accepted Answer

Policymakers are looking into the possib

Question 18

One problem with real business cycle theory is that:

Accepted Answer

A)  it relies almost entirely on Keynes' original ideas, ignoring much of the progress made since then. 
B)  it treats government officials as well- meaning public servants, despite much evidence to the contrary. 
C)  its models downplay the importance of technological progress in the economy. 
D)  it defines "productivity" in a new and not very intuitive way. 
E)  it is more successful in explaining expansions than in explaining contractions. 
A)  it relies almost entirely on Keynes' original ideas, ignoring much of the progress made since then. 
B)  it treats government officials as well- meaning public servants, despite much evidence to the contrary. 
C)  its models downplay the importance of technological progress in the economy. 
D)  it defines "productivity" in a new and not very intuitive way. 
E)  it is more successful in explaining expansions than in explaining contractions.

Question 19

Which of the following schools of thought advised against fine- tuning, due to our limited understanding of the economy?

Accepted Answer

A)  Keynesian. 
B)  New growth. 
C)  Neoclassical. 
D)  Monetarist. 
E)  New Keynesian. 
A)  Keynesian. 
B)  New growth. 
C)  Neoclassical. 
D)  Monetarist. 
E)  New Keynesian.

Question 20

The less staggered are labour contracts:

Accepted Answer

A)  the less inflationary effects of a given change in money growth in the medium run. 
B)  the more inflationary effects of a given change in money growth in the medium run. 
C)  the less the inflationary effects of a given change in money growth in the medium run. 
D)  the less rapidly the economy will adjust to changes in aggregate demand. 
E)  the more rapidly the economy will adjust to changes in aggregate demand. 
A)  the less inflationary effects of a given change in money growth in the medium run. 
B)  the more inflationary effects of a given change in money growth in the medium run. 
C)  the less the inflationary effects of a given change in money growth in the medium run. 
D)  the less rapidly the economy will adjust to changes in aggregate demand. 
E)  the more rapidly the economy will adjust to changes in aggregate demand.

Exam 25: Epilogue: the Story of Macroeconomics

Explain what is meant by liquidity preference.

Which of the following argued that the Great Depression was caused by monetary factors?

Liquidity preference refers to:

A core belief of modern macroeconomics is that in the long run:

Which of the following led a strong attack against mainstream macroeconomists during the 1970s?

During the 1970s and 1980s, macroeconomists were busy integrating the insights of which of the following into their ideas about the economy?

If the IS curve is relatively steep, then:

Discuss the various strands of research on the financial system and intermediation that researchers have sought to integrate into consistent macroeconomic models since the crisis.

The staggering of wage and price decisions suggests that:

Which of the following is a source of intellectual failure on the part of macroeconomics in predicting the crisis?

Which of the following is an implication of rational expectations theory?

Explain several of the key contributions of Keynes.

Which of the following was not part of the neoclassical synthesis?

"Effective demand" represents which of the following?

The new classical interpretation of the economy suggests that:

The neoclassical synthesis:

What are some of the lessons in policymaking and macroeconomic analysis that have emerged after the crisis? Discuss.

One problem with real business cycle theory is that:

Which of the following schools of thought advised against fine- tuning, due to our limited understanding of the economy?

The less staggered are labour contracts:

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Filters