Question 1

Classical economists focused on short-run effects of monetary policy.

Accepted Answer

A) True 
 B)False

Question 2

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of lags in adjusting policy.

Accepted Answer

A) True 
 B)False

Question 3

Nancy believes that the best way to grow the economy is through tax cuts to increase the incentive to work and invest. Though these tax cuts might initially increase the budget deficit, Nancy is convinced that the economic growth that results will actually increase government tax revenue. Nancy is BEST described as a:

Accepted Answer

A)  monetarist. 
B)  classical economist. 
C)  new Keynesian. 
D)  supply-sider. 
A)  monetarist. 
B)  classical economist. 
C)  new Keynesian. 
D)  supply-sider.

Question 4

Keynesian economics emphasizes _____ shifts in aggregate _____.

Accepted Answer

A)  long-run; demand 
B)  long-run; supply 
C)  short-run; demand 
D)  short-run; supply 
A)  long-run; demand 
B)  long-run; supply 
C)  short-run; demand 
D)  short-run; supply

Question 5

Which group of economists disagrees with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

Accepted Answer

A)  Keynesians 
B)  monetarists 
C)  supply-side economists 
D)  classical economists 
A)  Keynesians 
B)  monetarists 
C)  supply-side economists 
D)  classical economists

Question 6

New classical macroeconomists believe that the short-run aggregate:

Accepted Answer

A)  supply curve is vertical. 
B)  demand curve is vertical. 
C)  demand curve has a positive slope. 
D)  supply curve is horizontal. 
A)  supply curve is vertical. 
B)  demand curve is vertical. 
C)  demand curve has a positive slope. 
D)  supply curve is horizontal.

Question 7

The set of ideas known as the new Keynesian economics states that:

Accepted Answer

A)  markets clear in the short run because prices adjust whenever there are surpluses or shortages. 
B)  market imperfections tend to make prices sticky in the short run. 
C)  markets tend to be in equilibrium because of the inherent forces in the economy. 
D)  wage and price inflation is the main problem that most economies face in the short run. 
A)  markets clear in the short run because prices adjust whenever there are surpluses or shortages. 
B)  market imperfections tend to make prices sticky in the short run. 
C)  markets tend to be in equilibrium because of the inherent forces in the economy. 
D)  wage and price inflation is the main problem that most economies face in the short run.

Question 8

At the time of the Great Depression, there was:

Accepted Answer

A)  general agreement that monetary policy could help in the short run. 
B)  no widely accepted theory of the causes of depressions. 
C)  general agreement that fiscal policy could help in the short run. 
D)  a consensus about what economic policies to adopt. 
A)  general agreement that monetary policy could help in the short run. 
B)  no widely accepted theory of the causes of depressions. 
C)  general agreement that fiscal policy could help in the short run. 
D)  a consensus about what economic policies to adopt.

Question 9

The Great Moderation consensus is that:

Accepted Answer

A)  fiscal policy should play the main role in stabilization policy. 
B)  monetary policy should play the main role in stabilization policy. 
C)  automatic stabilizers should be the only type of policy used. 
D)  government budgets should always be balanced. 
A)  fiscal policy should play the main role in stabilization policy. 
B)  monetary policy should play the main role in stabilization policy. 
C)  automatic stabilizers should be the only type of policy used. 
D)  government budgets should always be balanced.

Question 10

The Great Depression was ended in the United States by:

Accepted Answer

A)  the government running budget surpluses throughout the 1930s. 
B)  the government increasing the money supply throughout the 1930s. 
C)  central planning of the economy by the government. 
D)  the huge amounts of government spending required to fight WWII during the early 1940s. 
A)  the government running budget surpluses throughout the 1930s. 
B)  the government increasing the money supply throughout the 1930s. 
C)  central planning of the economy by the government. 
D)  the huge amounts of government spending required to fight WWII during the early 1940s.

Question 11

In the 1970s and first half of the 1980s, the U.S. economy had _____ inflation and _____ unemployment.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low 
A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low

Question 12

Scenario: The Quantity Theory of Money Suppose that the money supply is equal to $10 billion and the velocity of money is 6. If the aggregate price level is 4, then the nominal GDP is:

Accepted Answer

A)  $15 billion. 
B)  $60 billion. 
C)  $20 billion. 
D)  $10 billion. 
A)  $15 billion. 
B)  $60 billion. 
C)  $20 billion. 
D)  $10 billion.

Question 13

Use the following to answer questions:  
-(Figure: Classical Versus Keynesian Macroeconomics) Refer to Figure: Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD2 to AD1, perhaps because of a large increase in government spending, the price level will _____ and real GDP will _____.

Accepted Answer

A)  rise; fall 
B)  rise; not change 
C)  not change; rise 
D)  fall; fall 
A)  rise; fall 
B)  rise; not change 
C)  not change; rise 
D)  fall; fall

Question 14

Which statement is FALSE? Keynesian economics:

Accepted Answer

A)  emphasizes the effects of shifts in aggregate demand on aggregate output. 
B)  focuses the attention of economists on situations in which the short-run aggregate supply curve slopes upward. 
C)  holds "animal spirits" mainly responsible for business cycles. 
D)  holds that changes in business confidence have no effect on either the aggregate price level or aggregate output. 
A)  emphasizes the effects of shifts in aggregate demand on aggregate output. 
B)  focuses the attention of economists on situations in which the short-run aggregate supply curve slopes upward. 
C)  holds "animal spirits" mainly responsible for business cycles. 
D)  holds that changes in business confidence have no effect on either the aggregate price level or aggregate output.

Question 15

During the 1940s, 1950s, and 1960s:

Accepted Answer

A)  the role of the government in the economy increased. 
B)  the role of the government in the economy decreased. 
C)  Keynes's ideas were constantly challenged by free-market policies. 
D)  Keynes's views were accepted only by left-wing socialist economists. 
A)  the role of the government in the economy increased. 
B)  the role of the government in the economy decreased. 
C)  Keynes's ideas were constantly challenged by free-market policies. 
D)  Keynes's views were accepted only by left-wing socialist economists.

Question 16

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Accepted Answer

A)  perceived the economy as being mostly self-adjusting. 
B)  favored the use of monetary policy over fiscal policy. 
C)  considered technological progress the answer to any economic slump. 
D)  favored the use of fiscal policy over monetary policy. 
A)  perceived the economy as being mostly self-adjusting. 
B)  favored the use of monetary policy over fiscal policy. 
C)  considered technological progress the answer to any economic slump. 
D)  favored the use of fiscal policy over monetary policy.

Question 17

Which statement is TRUE?

Accepted Answer

A)  Keynes treated short-run macroeconomics as a minor issue. 
B)  Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate output, employment, and prices, whereas the classical economists focused on the long-run determination of the aggregate price level. 
C)  The classical economists believed that the short-run aggregate supply curve was upward sloping. 
D)  The classical economists emphasized the short-run effects of shifts in aggregate demand on aggregate output, whereas Keynes focused on the long-run determination of the aggregate price level. 
A)  Keynes treated short-run macroeconomics as a minor issue. 
B)  Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate output, employment, and prices, whereas the classical economists focused on the long-run determination of the aggregate price level. 
C)  The classical economists believed that the short-run aggregate supply curve was upward sloping. 
D)  The classical economists emphasized the short-run effects of shifts in aggregate demand on aggregate output, whereas Keynes focused on the long-run determination of the aggregate price level.

Question 18

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 19

Milton Friedman's argument was that the Fed should follow a monetary policy rule so that the money supply would:

Accepted Answer

A)  grow at a slow and steady rate. 
B)  remain constant. 
C)  grow proportionally with the price level. 
D)  grow at the same rate as the GDP growth rate. 
A)  grow at a slow and steady rate. 
B)  remain constant. 
C)  grow proportionally with the price level. 
D)  grow at the same rate as the GDP growth rate.

Question 20

The classical school of economics:

Accepted Answer

A)  emphasizes the short run. 
B)  emphasizes the flexibility of wages and prices. 
C)  has a problem with potential output, since potential output cannot be achieved without active policy. 
D)  advocates the use of discretionary fiscal policy. 
A)  emphasizes the short run. 
B)  emphasizes the flexibility of wages and prices. 
C)  has a problem with potential output, since potential output cannot be achieved without active policy. 
D)  advocates the use of discretionary fiscal policy.

Classical economists focused on short-run effects of monetary policy.

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of lags in adjusting policy.

Keynesian economics emphasizes _ shifts in aggregate _.

Which group of economists disagrees with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

New classical macroeconomists believe that the short-run aggregate:

The set of ideas known as the new Keynesian economics states that:

At the time of the Great Depression, there was:

The Great Moderation consensus is that:

The Great Depression was ended in the United States by:

In the 1970s and first half of the 1980s, the U.S. economy had _ inflation and _ unemployment.

Scenario: The Quantity Theory of Money Suppose that the money supply is equal to $10 billion and the velocity of money is 6. If the aggregate price level is 4, then the nominal GDP is:

Which statement is FALSE? Keynesian economics:

During the 1940s, 1950s, and 1960s:

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Which statement is TRUE?

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

Milton Friedman's argument was that the Fed should follow a monetary policy rule so that the money supply would:

The classical school of economics:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

International Macroeconomics

Filters

Exam 17: Macroeconomics: Events and Ideas

Classical economists focused on short-run effects of monetary policy.

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of lags in adjusting policy.

Keynesian economics emphasizes _____ shifts in aggregate _____.

Which group of economists disagrees with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

New classical macroeconomists believe that the short-run aggregate:

The set of ideas known as the new Keynesian economics states that:

At the time of the Great Depression, there was:

The Great Moderation consensus is that:

The Great Depression was ended in the United States by:

In the 1970s and first half of the 1980s, the U.S. economy had _____ inflation and _____ unemployment.

Scenario: The Quantity Theory of Money Suppose that the money supply is equal to $10 billion and the velocity of money is 6. If the aggregate price level is 4, then the nominal GDP is:

Which statement is FALSE? Keynesian economics:

During the 1940s, 1950s, and 1960s:

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Which statement is TRUE?

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

Milton Friedman's argument was that the Fed should follow a monetary policy rule so that the money supply would:

The classical school of economics:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

International Macroeconomics

Filters

Keynesian economics emphasizes _ shifts in aggregate _.

In the 1970s and first half of the 1980s, the U.S. economy had _ inflation and _ unemployment.