Question 1

Monetarism suggests that:

Accepted Answer

A)  money should be backed by gold. 
B)  the economy is unstable. 
C)  monetary policy should be used to offset economic fluctuations. 
D)  discretionary monetary policy does more harm than good. 
A)  money should be backed by gold. 
B)  the economy is unstable. 
C)  monetary policy should be used to offset economic fluctuations. 
D)  discretionary monetary policy does more harm than good.

Question 2

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

Accepted Answer

A)  quantitative easing. 
B)  fiscal stimulus. 
C)  expansionary austerity. 
D)  a credit crunch. 
A)  quantitative easing. 
B)  fiscal stimulus. 
C)  expansionary austerity. 
D)  a credit crunch.

Question 3

Which statement BEST explains why the Fed flirted with monetarism but then gave up?

Accepted Answer

A)  The natural rate hypothesis failed to predict a worsening of the trade-off between inflation and unemployment. 
B)  A sharp rise in inflation during the 1970s broke the perceived trade-off between inflation and unemployment and discredited traditional Keynesianism. 
C)  Inflation started dropping off sharply in the 1980s, and this helped bolster the view that targeting the money supply no longer made sense. 
D)  It finally became evident that there was no longer a trade-off between inflation and unemployment. 
A)  The natural rate hypothesis failed to predict a worsening of the trade-off between inflation and unemployment. 
B)  A sharp rise in inflation during the 1970s broke the perceived trade-off between inflation and unemployment and discredited traditional Keynesianism. 
C)  Inflation started dropping off sharply in the 1980s, and this helped bolster the view that targeting the money supply no longer made sense. 
D)  It finally became evident that there was no longer a trade-off between inflation and unemployment.

Question 4

Reduction of interest rates was ineffective in fighting the Great Recession because:

Accepted Answer

A)  Congress decreased government spending to balance the budget. 
B)  crowding-out occurred. 
C)  the economy was dangerously close to a liquidity trap. 
D)  businesses and consumers borrowed and spent so much that it caused an inflationary gap. 
A)  Congress decreased government spending to balance the budget. 
B)  crowding-out occurred. 
C)  the economy was dangerously close to a liquidity trap. 
D)  businesses and consumers borrowed and spent so much that it caused an inflationary gap.

Question 5

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Accepted Answer

A)  debt overhang. 
B)  the natural rate hypothesis. 
C)  supply-side economics. 
D)  Ricardian equivalence. 
A)  debt overhang. 
B)  the natural rate hypothesis. 
C)  supply-side economics. 
D)  Ricardian equivalence.

Question 6

Despite of the budget deficits that resulted from the fiscal stimulus of 2009,:

Accepted Answer

A)  the public debt decreased. 
B)  interest rates remained very low. 
C)  interest rates increased to record high levels. 
D)  crowding-out occurred. 
A)  the public debt decreased. 
B)  interest rates remained very low. 
C)  interest rates increased to record high levels. 
D)  crowding-out occurred.

Question 7

Nearly all economists agree that increases in government spending can _____ aggregate _____.

Accepted Answer

A)  increase; supply 
B)  decrease; supply 
C)  decrease; demand 
D)  increase; demand 
A)  increase; supply 
B)  decrease; supply 
C)  decrease; demand 
D)  increase; demand

Question 8

Classical macroeconomists believed that monetary policy should be used to fight recessions.

Accepted Answer

A) True 
 B)False

Question 9

Which statement do economists broadly consider to be TRUE?

Accepted Answer

A)  A monetary rule can increase real GDP. 
B)  Discretionary fiscal policy is typically more effective than monetary policy in fighting recessions. 
C)  A nation's central bank should be managed by elected officials. 
D)  Discretionary monetary and fiscal policy cannot affect the long-run level of unemployment. 
A)  A monetary rule can increase real GDP. 
B)  Discretionary fiscal policy is typically more effective than monetary policy in fighting recessions. 
C)  A nation's central bank should be managed by elected officials. 
D)  Discretionary monetary and fiscal policy cannot affect the long-run level of unemployment.

Question 10

The Keynesian school of thought is that expansionary monetary policy has very little or no effect on output.

Accepted Answer

A) True 
 B)False

Question 11

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

Accepted Answer

A)  if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and help the government achieve its goal. 
B)  if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and inflation expectations will immediately rise. 
C)  a government attempt to trade off higher inflation for lower unemployment would not work in the short run but would be fine in the long run. 
D)  even if people are not expecting inflation and are unaware of government policies, inflation expectations are still going to be embedded. 
A)  if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and help the government achieve its goal. 
B)  if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and inflation expectations will immediately rise. 
C)  a government attempt to trade off higher inflation for lower unemployment would not work in the short run but would be fine in the long run. 
D)  even if people are not expecting inflation and are unaware of government policies, inflation expectations are still going to be embedded.

Question 12

According to rational expectations, monetary policy is:

Accepted Answer

A)  always effective. 
B)  effective only if it is unexpected. 
C)  ineffective compared to fiscal policy. 
D)  effective only when fiscal policy accommodates it. 
A)  always effective. 
B)  effective only if it is unexpected. 
C)  ineffective compared to fiscal policy. 
D)  effective only when fiscal policy accommodates it.

Question 13

The economist that warned that any attempt to alleviate the Great Depression with expansionary monetary policy "would, in the end, lead to a collapse worse than the one it was called in to remedy" was:

Accepted Answer

A)  John Maynard Keynes. 
B)  Milton Friedman. 
C)  Wesley Mitchel. 
D)  Joseph Schumpeter. 
A)  John Maynard Keynes. 
B)  Milton Friedman. 
C)  Wesley Mitchel. 
D)  Joseph Schumpeter.

Question 14

The recommendation that the government should avoid deficit spending because of the crowding-out effect on investment spending is consistent with _____ macroeconomics.

Accepted Answer

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

Question 15

Which school of thought believes that fiscal policy should have the central role in fighting recessions? I. classical macroeconomics
II) Keynesian macroeconomics
III) monetarism

Accepted Answer

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

Question 16

The Great Moderation consensus was shattered by:

Accepted Answer

A)  the Great Recession. 
B)  the Great Depression. 
C)  World War II. 
D)  the Panic of 1907. 
A)  the Great Recession. 
B)  the Great Depression. 
C)  World War II. 
D)  the Panic of 1907.

Question 17

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 18

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n) _____ in the price level and _____ in unemployment.

Accepted Answer

A)  increase; an increase 
B)  decrease; a decrease 
C)  increase; no change 
D)  decrease; no change 
A)  increase; an increase 
B)  decrease; a decrease 
C)  increase; no change 
D)  decrease; no change

Question 19

According to some economic historians, the first true modern recession took place in:

Accepted Answer

A)  the United States in 1854. 
B)  Britain in 1825. 
C)  Russia in 1860. 
D)  Japan in 1890. 
A)  the United States in 1854. 
B)  Britain in 1825. 
C)  Russia in 1860. 
D)  Japan in 1890.

Question 20

The main ideas of Keynesian economics are the importance of the _____ and emphasis on _____.

Accepted Answer

A)  long run over the short run; a vertical SRAS curve 
B)  long run over the short run; the AD curve and the SRAS curve 
C)  short run over the long run; the AD curve and a rising SRAS curve 
D)  free market with no government intervention; monetary policy in the long run 
A)  long run over the short run; a vertical SRAS curve 
B)  long run over the short run; the AD curve and the SRAS curve 
C)  short run over the long run; the AD curve and a rising SRAS curve 
D)  free market with no government intervention; monetary policy in the long run

Monetarism suggests that:

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

Which statement BEST explains why the Fed flirted with monetarism but then gave up?

Reduction of interest rates was ineffective in fighting the Great Recession because:

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Despite of the budget deficits that resulted from the fiscal stimulus of 2009,:

Nearly all economists agree that increases in government spending can _ aggregate _.

Classical macroeconomists believed that monetary policy should be used to fight recessions.

Which statement do economists broadly consider to be TRUE?

The Keynesian school of thought is that expansionary monetary policy has very little or no effect on output.

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

According to rational expectations, monetary policy is:

The economist that warned that any attempt to alleviate the Great Depression with expansionary monetary policy "would, in the end, lead to a collapse worse than the one it was called in to remedy" was:

The recommendation that the government should avoid deficit spending because of the crowding-out effect on investment spending is consistent with _____ macroeconomics.

Which school of thought believes that fiscal policy should have the central role in fighting recessions? I. classical macroeconomics II) Keynesian macroeconomics III) monetarism

The Great Moderation consensus was shattered by:

Milton Friedman was a leader and major proponent of:

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n) _ in the price level and _ in unemployment.

According to some economic historians, the first true modern recession took place in:

The main ideas of Keynesian economics are the importance of the _ and emphasis on _.

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

Monetarism suggests that:

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

Which statement BEST explains why the Fed flirted with monetarism but then gave up?

Reduction of interest rates was ineffective in fighting the Great Recession because:

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Despite of the budget deficits that resulted from the fiscal stimulus of 2009,:

Nearly all economists agree that increases in government spending can _____ aggregate _____.

Classical macroeconomists believed that monetary policy should be used to fight recessions.

Which statement do economists broadly consider to be TRUE?

The Keynesian school of thought is that expansionary monetary policy has very little or no effect on output.

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

According to rational expectations, monetary policy is:

The economist that warned that any attempt to alleviate the Great Depression with expansionary monetary policy "would, in the end, lead to a collapse worse than the one it was called in to remedy" was:

The recommendation that the government should avoid deficit spending because of the crowding-out effect on investment spending is consistent with _____ macroeconomics.

Which school of thought believes that fiscal policy should have the central role in fighting recessions? I. classical macroeconomics II) Keynesian macroeconomics III) monetarism

The Great Moderation consensus was shattered by:

Milton Friedman was a leader and major proponent of:

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n) _____ in the price level and _____ in unemployment.

According to some economic historians, the first true modern recession took place in:

The main ideas of Keynesian economics are the importance of the _____ and emphasis on _____.

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

Nearly all economists agree that increases in government spending can _ aggregate _.

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n) _ in the price level and _ in unemployment.

The main ideas of Keynesian economics are the importance of the _ and emphasis on _.