Question 1

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

The concept of the monetary policy rule is based on the assumption that:

Accepted Answer

A)  discretionary fiscal policy crowds out investment spending. 
B)  the natural rate of unemployment is constant in the long run. 
C)  monetary policy lags are shorter than fiscal policy lags. 
D)  the velocity of money is constant in the short run. 
A)  discretionary fiscal policy crowds out investment spending. 
B)  the natural rate of unemployment is constant in the long run. 
C)  monetary policy lags are shorter than fiscal policy lags. 
D)  the velocity of money is constant in the short run.

Question 3

The Fed moved away from a monetary growth rule because _____ was/were unstable.

Accepted Answer

A)  the economy 
B)  the money supply 
C)  the velocity of money 
D)  interest rates 
A)  the economy 
B)  the money supply 
C)  the velocity of money 
D)  interest rates

Question 4

In the Keynesian model, prices and nominal wages are _____, the short-run aggregate supply curve is upward sloping, and as a result, an increase in the money supply leads to _____ in the aggregate price level.

Accepted Answer

A)  sticky; a less than proportional decrease 
B)  flexible; a proportional decrease 
C)  sticky; a less than proportional increase 
D)  flexible; a proportional increase 
A)  sticky; a less than proportional decrease 
B)  flexible; a proportional decrease 
C)  sticky; a less than proportional increase 
D)  flexible; a proportional increase

Question 5

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Accepted Answer

A) True 
 B)False

Question 6

Economists today generally believe that monetary policy can stabilize the economy but not reduce unemployment below its natural rate.

Accepted Answer

A) True 
 B)False

Question 7

Keynes's ideas were:

Accepted Answer

A)  quickly adopted in the 1930s to end the Great Depression. 
B)  slowly but consistently used in 2008 to end the Great Recession. 
C)  used somewhat to help reduce the Great Depression. 
D)  ignored in the Great Depression. 
A)  quickly adopted in the 1930s to end the Great Depression. 
B)  slowly but consistently used in 2008 to end the Great Recession. 
C)  used somewhat to help reduce the Great Depression. 
D)  ignored in the Great Depression.

Question 8

When the Fed pursues a policy of quantitative easing, it:

Accepted Answer

A)  is trying to increase interest rates. 
B)  is trying to decrease inflation. 
C)  purchases short-term government securities. 
D)  purchases long-term debt whose interest rates are significantly above zero. 
A)  is trying to increase interest rates. 
B)  is trying to decrease inflation. 
C)  purchases short-term government securities. 
D)  purchases long-term debt whose interest rates are significantly above zero.

Question 9

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

Accepted Answer

A)  once inflation gets embedded in people's expectations, unemployment and inflation will have a trade-off. 
B)  the unemployment and inflation trade-off will not survive if inflation gets embedded in people's expectations. 
C)  there will always be an unemployment and inflation trade-off. 
D)  the unemployment and inflation trade-off is a myth. 
A)  once inflation gets embedded in people's expectations, unemployment and inflation will have a trade-off. 
B)  the unemployment and inflation trade-off will not survive if inflation gets embedded in people's expectations. 
C)  there will always be an unemployment and inflation trade-off. 
D)  the unemployment and inflation trade-off is a myth.

Question 10

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

Accepted Answer

A)  classical 
B)  classical and monetarist 
C)  classical and Keynesian 
D)  Keynesian and Great Moderation consensus 
A)  classical 
B)  classical and monetarist 
C)  classical and Keynesian 
D)  Keynesian and Great Moderation consensus

Question 11

Since fiscal policy can be manipulated by partisan political interests:

Accepted Answer

A)  the political business cycle may drive the economic business cycle. 
B)  we may see lower interest rates before elections and higher interest rates after elections. 
C)  the economic business cycle may lead the political business cycle. 
D)  we may see lower inflation and higher unemployment before elections. 
A)  the political business cycle may drive the economic business cycle. 
B)  we may see lower interest rates before elections and higher interest rates after elections. 
C)  the economic business cycle may lead the political business cycle. 
D)  we may see lower inflation and higher unemployment before elections.

Question 12

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

Accepted Answer

A)  classical 
B)  Keynesian 
C)  monetarist 
D)  Great Moderation consensus 
A)  classical 
B)  Keynesian 
C)  monetarist 
D)  Great Moderation consensus

Question 13

Joseph believes that changes in the business cycle can be attributed to shifts in the vertical aggregate supply curve. These shifts are caused by faster or slower increases in economic productivity. Joseph is best described as supporting the _____ theory.

Accepted Answer

A)  rational expectations 
B)  supply-side 
C)  real business cycle 
D)  new Keynesian 
A)  rational expectations 
B)  supply-side 
C)  real business cycle 
D)  new Keynesian

Question 14

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____, the price level rises, and aggregate output_____.

Accepted Answer

A)  right; increases 
B)  left; remains constant 
C)  right; decreases 
D)  left; decreases 
A)  right; increases 
B)  left; remains constant 
C)  right; decreases 
D)  left; decreases

Question 15

In the classical model of the price level, prices are _____, the short-run aggregate supply curve is vertical, and as a result, a decrease in the money supply leads to _____ in the aggregate price level.

Accepted Answer

A)  sticky; a more than proportional decrease 
B)  flexible; a proportional decrease 
C)  sticky; a more than proportional increase 
D)  flexible; a proportional increase 
A)  sticky; a more than proportional decrease 
B)  flexible; a proportional decrease 
C)  sticky; a more than proportional increase 
D)  flexible; a proportional increase

Question 16

We now typically refer to the Keynesian term "animal spirits" as:

Accepted Answer

A)  rational expectation. 
B)  business confidence. 
C)  adaptive expectation. 
D)  irrational exuberance. 
A)  rational expectation. 
B)  business confidence. 
C)  adaptive expectation. 
D)  irrational exuberance.

Question 17

Classical economists focused mainly on:

Accepted Answer

A)  unemployment. 
B)  the short run. 
C)  the long run. 
D)  government economic policy. 
A)  unemployment. 
B)  the short run. 
C)  the long run. 
D)  government economic policy.

Question 18

From 1979 to 1982, the Federal Reserve System:

Accepted Answer

A)  followed monetarist policy suggestions. 
B)  initiated a sharply expansionary monetary policy. 
C)  pursued a policy that shifted AD to the right. 
D)  fell into the liquidity trap. 
A)  followed monetarist policy suggestions. 
B)  initiated a sharply expansionary monetary policy. 
C)  pursued a policy that shifted AD to the right. 
D)  fell into the liquidity trap.

Question 19

During the 1960s and 1970s, most monetarists believed that the velocity of money:

Accepted Answer

A)  was stable. 
B)  was inversely related to the money stock. 
C)  moved in tandem with the money stock. 
D)  was irrelevant to the price level. 
A)  was stable. 
B)  was inversely related to the money stock. 
C)  moved in tandem with the money stock. 
D)  was irrelevant to the price level.

Question 20

The Great Moderation consensus agreement that a decrease in the interest rate was the best policy for fighting a recession was ineffective in the Great Recession because:

Accepted Answer

A)  the Fed bought government securities, but interest rates did not fall. 
B)  interest rates were already close to zero. 
C)  financial institutions were engaging in maturity transformation. 
D)  Congress increased taxes. 
A)  the Fed bought government securities, but interest rates did not fall. 
B)  interest rates were already close to zero. 
C)  financial institutions were engaging in maturity transformation. 
D)  Congress increased taxes.

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

The concept of the monetary policy rule is based on the assumption that:

The Fed moved away from a monetary growth rule because _____ was/were unstable.

In the Keynesian model, prices and nominal wages are _, the short-run aggregate supply curve is upward sloping, and as a result, an increase in the money supply leads to _ in the aggregate price level.

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Economists today generally believe that monetary policy can stabilize the economy but not reduce unemployment below its natural rate.

Keynes's ideas were:

When the Fed pursues a policy of quantitative easing, it:

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

Since fiscal policy can be manipulated by partisan political interests:

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

Joseph believes that changes in the business cycle can be attributed to shifts in the vertical aggregate supply curve. These shifts are caused by faster or slower increases in economic productivity. Joseph is best described as supporting the _____ theory.

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _, the price level rises, and aggregate output_.

In the classical model of the price level, prices are _, the short-run aggregate supply curve is vertical, and as a result, a decrease in the money supply leads to _ in the aggregate price level.

We now typically refer to the Keynesian term "animal spirits" as:

Classical economists focused mainly on:

From 1979 to 1982, the Federal Reserve System:

During the 1960s and 1970s, most monetarists believed that the velocity of money:

The Great Moderation consensus agreement that a decrease in the interest rate was the best policy for fighting a recession was ineffective in the Great Recession because:

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

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

The concept of the monetary policy rule is based on the assumption that:

The Fed moved away from a monetary growth rule because _____ was/were unstable.

In the Keynesian model, prices and nominal wages are _____, the short-run aggregate supply curve is upward sloping, and as a result, an increase in the money supply leads to _____ in the aggregate price level.

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Economists today generally believe that monetary policy can stabilize the economy but not reduce unemployment below its natural rate.

Keynes's ideas were:

When the Fed pursues a policy of quantitative easing, it:

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

Since fiscal policy can be manipulated by partisan political interests:

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

Joseph believes that changes in the business cycle can be attributed to shifts in the vertical aggregate supply curve. These shifts are caused by faster or slower increases in economic productivity. Joseph is best described as supporting the _____ theory.

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____, the price level rises, and aggregate output_____.

In the classical model of the price level, prices are _____, the short-run aggregate supply curve is vertical, and as a result, a decrease in the money supply leads to _____ in the aggregate price level.

We now typically refer to the Keynesian term "animal spirits" as:

Classical economists focused mainly on:

From 1979 to 1982, the Federal Reserve System:

During the 1960s and 1970s, most monetarists believed that the velocity of money:

The Great Moderation consensus agreement that a decrease in the interest rate was the best policy for fighting a recession was ineffective in the Great Recession because:

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

In the Keynesian model, prices and nominal wages are _, the short-run aggregate supply curve is upward sloping, and as a result, an increase in the money supply leads to _ in the aggregate price level.

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _, the price level rises, and aggregate output_.

In the classical model of the price level, prices are _, the short-run aggregate supply curve is vertical, and as a result, a decrease in the money supply leads to _ in the aggregate price level.