Question 1

According to monetarism:

Accepted Answer

A)  Congress and the president should be responsible for controlling the money supply. 
B)  output will grow steadily if the money supply grows at a steady rate. 
C)  the Fed should vary the growth rate of the money supply on a monthly basis. 
D)  changes in the money supply affect the real output only in the long run. 
A)  Congress and the president should be responsible for controlling the money supply. 
B)  output will grow steadily if the money supply grows at a steady rate. 
C)  the Fed should vary the growth rate of the money supply on a monthly basis. 
D)  changes in the money supply affect the real output only in the long run.

Question 2

Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth.

Accepted Answer

A) True 
 B)False

Question 3

Christina believes that shifts in aggregate demand cause a change in both real output and the price level. She believes that an economic recession will not necessarily self-correct in the long run, and therefore she believes that active fiscal and monetary policy is justified to smooth out the business cycle. Christina is BEST described as a:

Accepted Answer

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

Question 4

Friedman favored:

Accepted Answer

A)  activist monetary policy to stabilize the economy. 
B)  activist fiscal policy coupled with a neutral monetary policy. 
C)  a monetary policy rule. 
D)  interest rate targeting. 
A)  activist monetary policy to stabilize the economy. 
B)  activist fiscal policy coupled with a neutral monetary policy. 
C)  a monetary policy rule. 
D)  interest rate targeting.

Question 5

If crowding out occurs:

Accepted Answer

A)  increases in consumption are offset by decreases in government spending. 
B)  increases in the money supply are offset by dollar outflows in foreign trade. 
C)  increases in government spending cause higher interest rates and decreased investment spending. 
D)  decreases in government spending cause lower interest rates and decreased investment spending. 
A)  increases in consumption are offset by decreases in government spending. 
B)  increases in the money supply are offset by dollar outflows in foreign trade. 
C)  increases in government spending cause higher interest rates and decreased investment spending. 
D)  decreases in government spending cause lower interest rates and decreased investment spending.

Question 6

The real business cycle theorists say that changes in total factor productivity are totally the result of:

Accepted Answer

A)  depressions. 
B)  shifts in aggregate supply. 
C)  shifts in aggregate demand. 
D)  uneven technological progress. 
A)  depressions. 
B)  shifts in aggregate supply. 
C)  shifts in aggregate demand. 
D)  uneven technological progress.

Question 7

The Great Moderation consensus about macroeconomic policy is that:

Accepted Answer

A)  only monetary policy works against recessions, but fiscal policy is effective only in the long run. 
B)  expansionary monetary and fiscal policies can both reduce unemployment in the long run. 
C)  expansionary monetary and fiscal policies are both effective in the short run but not in the long run. 
D)  discretionary monetary and fiscal policies are effective in the short run and in the long run. 
A)  only monetary policy works against recessions, but fiscal policy is effective only in the long run. 
B)  expansionary monetary and fiscal policies can both reduce unemployment in the long run. 
C)  expansionary monetary and fiscal policies are both effective in the short run but not in the long run. 
D)  discretionary monetary and fiscal policies are effective in the short run and in the long run.

Question 8

Which school of thought believes that expansionary monetary policy affects only prices, not output? I. classical macroeconomics
II) Great Moderation consensus

Accepted Answer

A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II

Question 9

Macroeconomic policy activism:

Accepted Answer

A)  is the use of political activism made popular by liberal economists. 
B)  mandates a balanced government budget. 
C)  is the use of monetary and fiscal policy to smooth out the business cycle. 
D)  was the tool used by classical economists. 
A)  is the use of political activism made popular by liberal economists. 
B)  mandates a balanced government budget. 
C)  is the use of monetary and fiscal policy to smooth out the business cycle. 
D)  was the tool used by classical economists.

Question 10

Classical economists did NOT believe that:

Accepted Answer

A)  there could be temporary periods of unemployment. 
B)  emphasis should be on the long run, and in the long run all would be set right because of the smooth functioning of the price system. 
C)  the Great Depression would be a short-run aberration. 
D)  monetary policy could tame the business cycle. 
A)  there could be temporary periods of unemployment. 
B)  emphasis should be on the long run, and in the long run all would be set right because of the smooth functioning of the price system. 
C)  the Great Depression would be a short-run aberration. 
D)  monetary policy could tame the business cycle.

Question 11

A hypothesis that individuals base their expectations on available information and act on that information is called the:

Accepted Answer

A)  irrational forecasts hypothesis. 
B)  rational information theory hypothesis. 
C)  rational expectations hypothesis. 
D)  rational abstention hypothesis. 
A)  irrational forecasts hypothesis. 
B)  rational information theory hypothesis. 
C)  rational expectations hypothesis. 
D)  rational abstention hypothesis.

Question 12

The consensus is that the Great Depression was ended by:

Accepted Answer

A)  imposing fiscal discipline and reducing budget deficits. 
B)  following Keynes's analysis regarding the "animal spirits." 
C)  increasing the money supply and lowering the interest rate. 
D)  applying expansionary fiscal policy on a large scale. 
A)  imposing fiscal discipline and reducing budget deficits. 
B)  following Keynes's analysis regarding the "animal spirits." 
C)  increasing the money supply and lowering the interest rate. 
D)  applying expansionary fiscal policy on a large scale.

Question 13

Real business cycle theory argues that:

Accepted Answer

A)  changes in inventories are the cause of the business cycle. 
B)  fluctuations in the rate of growth of total factor productivity cause the business cycle. 
C)  aggregate demand is more important than aggregate supply in identifying the causes of the business cycle. 
D)  changes in the money supply are the primary cause of the business cycle. 
A)  changes in inventories are the cause of the business cycle. 
B)  fluctuations in the rate of growth of total factor productivity cause the business cycle. 
C)  aggregate demand is more important than aggregate supply in identifying the causes of the business cycle. 
D)  changes in the money supply are the primary cause of the business cycle.

Question 14

The theory of rational expectations states that:

Accepted Answer

A)  people make decisions optimally as often as they make decisions less than optimally. 
B)  expectations about future real wages are often irrational. 
C)  people make decisions using all available information. 
D)  designing effective economic policy is very difficult because of the shortage of information. 
A)  people make decisions optimally as often as they make decisions less than optimally. 
B)  expectations about future real wages are often irrational. 
C)  people make decisions using all available information. 
D)  designing effective economic policy is very difficult because of the shortage of information.

Question 15

Which argument was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

Accepted Answer

A)  Monetary policy would not be effective because interest rates were so high. 
B)  Crowding-out was not likely to be a problem in a very depressed economy with interest rates near zero. 
C)  The economy was so depressed that a political business cycle was not likely to be a problem. 
D)  Ricardian equivalence was likely if monetary policy was used alone. 
A)  Monetary policy would not be effective because interest rates were so high. 
B)  Crowding-out was not likely to be a problem in a very depressed economy with interest rates near zero. 
C)  The economy was so depressed that a political business cycle was not likely to be a problem. 
D)  Ricardian equivalence was likely if monetary policy was used alone.

Question 16

Which statement does NOT represent the broad consensus among macroeconomists?

Accepted Answer

A)  Monetary policy should play the main role in stabilization policy. 
B)  The central bank should be independent, insulated from political pressures, to avoid a political business cycle. 
C)  Discretionary fiscal policy should be used sparingly because of policy lags and the risks of the political business cycle. 
D)  Discretionary fiscal policy can lower the natural rate of unemployment. 
A)  Monetary policy should play the main role in stabilization policy. 
B)  The central bank should be independent, insulated from political pressures, to avoid a political business cycle. 
C)  Discretionary fiscal policy should be used sparingly because of policy lags and the risks of the political business cycle. 
D)  Discretionary fiscal policy can lower the natural rate of unemployment.

Question 17

Real business cycle theory suggests the business cycle is caused by:

Accepted Answer

A)  discretionary monetary policy. 
B)  fluctuations in the rate of productivity. 
C)  "animal spirits." 
D)  protectionism. 
A)  discretionary monetary policy. 
B)  fluctuations in the rate of productivity. 
C)  "animal spirits." 
D)  protectionism.

Question 18

Which statement is TRUE of the state of modern macroeconomics?

Accepted Answer

A)  There is much more consensus than disagreement among economists. 
B)  Inflation targeting and asset price management are incompatible duties for a central bank. 
C)  Congress indirectly controls the Fed and monetary policy through its annual budget allocations. 
D)  The Great Recession heightened the areas of disagreement among macroeconomists over key policy questions. 
A)  There is much more consensus than disagreement among economists. 
B)  Inflation targeting and asset price management are incompatible duties for a central bank. 
C)  Congress indirectly controls the Fed and monetary policy through its annual budget allocations. 
D)  The Great Recession heightened the areas of disagreement among macroeconomists over key policy questions.

Question 19

The General Theory of Employment, Interest, and Money is:

Accepted Answer

A)  the first economics textbook of the 1980s. 
B)  a defense of fiscal policy written by Milton Friedman. 
C)  an analysis of the Great Depression. 
D)  an explanation of globalization. 
A)  the first economics textbook of the 1980s. 
B)  a defense of fiscal policy written by Milton Friedman. 
C)  an analysis of the Great Depression. 
D)  an explanation of globalization.

Question 20

The Great Moderation consensus is that expansionary monetary policy affects only prices, not output.

Accepted Answer

A) True 
 B)False

According to monetarism:

Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth.

Friedman favored:

If crowding out occurs:

The real business cycle theorists say that changes in total factor productivity are totally the result of:

The Great Moderation consensus about macroeconomic policy is that:

Which school of thought believes that expansionary monetary policy affects only prices, not output? I. classical macroeconomics II) Great Moderation consensus

Macroeconomic policy activism:

Classical economists did NOT believe that:

A hypothesis that individuals base their expectations on available information and act on that information is called the:

The consensus is that the Great Depression was ended by:

Real business cycle theory argues that:

The theory of rational expectations states that:

Which argument was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

Which statement does NOT represent the broad consensus among macroeconomists?

Real business cycle theory suggests the business cycle is caused by:

Which statement is TRUE of the state of modern macroeconomics?

The General Theory of Employment, Interest, and Money is:

The Great Moderation consensus is that expansionary monetary policy affects only prices, not output.

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

According to monetarism:

Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth.

Friedman favored:

If crowding out occurs:

The real business cycle theorists say that changes in total factor productivity are totally the result of:

The Great Moderation consensus about macroeconomic policy is that:

Which school of thought believes that expansionary monetary policy affects only prices, not output? I. classical macroeconomics II) Great Moderation consensus

Macroeconomic policy activism:

Classical economists did NOT believe that:

A hypothesis that individuals base their expectations on available information and act on that information is called the:

The consensus is that the Great Depression was ended by:

Real business cycle theory argues that:

The theory of rational expectations states that:

Which argument was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

Which statement does NOT represent the broad consensus among macroeconomists?

Real business cycle theory suggests the business cycle is caused by:

Which statement is TRUE of the state of modern macroeconomics?

The General Theory of Employment, Interest, and Money is:

The Great Moderation consensus is that expansionary monetary policy affects only prices, not output.

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