Question 1

The slump that followed the 2008 financial crisis is called the Great Modernization.

Accepted Answer

A) True 
 B)False

Question 2

Real business cycle theory contends that the:

Accepted Answer

A)  aggregate supply curve is vertical, and it shifts to the left in a recession. 
B)  aggregate demand curve is vertical, and it is the main factor that causes the business cycle. 
C)  aggregate supply curve is horizontal, indicating that business cycles have been stabilized. 
D)  aggregate demand curve is downward sloping, which shows that productivity growth is slowing down, causing the business cycle. 
A)  aggregate supply curve is vertical, and it shifts to the left in a recession. 
B)  aggregate demand curve is vertical, and it is the main factor that causes the business cycle. 
C)  aggregate supply curve is horizontal, indicating that business cycles have been stabilized. 
D)  aggregate demand curve is downward sloping, which shows that productivity growth is slowing down, causing the business cycle.

Question 3

The _____ hypothesis is that macroeconomic policy should be used to stabilize the economy rather than to permanently decrease the unemployment rate.

Accepted Answer

A)  natural rate 
B)  political business cycle 
C)  rational expectations 
D)  real business cycle 
A)  natural rate 
B)  political business cycle 
C)  rational expectations 
D)  real business cycle

Question 4

According to Keynesian economics, a tax cut will _____ aggregate demand and output by _____.

Accepted Answer

A)  increase; decreasing exports 
B)  decrease; decreasing incentives to work and save 
C)  increase; increasing income and consumption 
D)  increase; decreasing government spending 
A)  increase; decreasing exports 
B)  decrease; decreasing incentives to work and save 
C)  increase; increasing income and consumption 
D)  increase; decreasing government spending

Question 5

Which statement does NOT describe the Great Moderation consensus among macroeconomists?

Accepted Answer

A)  Monetary policy should play the main role in stabilization policy. 
B)  The central bank should be independent of politics. 
C)  Discretionary fiscal policy should be used sparingly. 
D)  Monetary policy is the only way to get out of the liquidity trap. 
A)  Monetary policy should play the main role in stabilization policy. 
B)  The central bank should be independent of politics. 
C)  Discretionary fiscal policy should be used sparingly. 
D)  Monetary policy is the only way to get out of the liquidity trap.

Question 6

New classical economics:

Accepted Answer

A)  focuses on short-run economic fluctuations. 
B)  returns to the view that shifts in aggregate demand affect only the price level. 
C)  argues that the business cycle is caused by "animal spirits." 
D)  focuses on the trade-off between unemployment and inflation. 
A)  focuses on short-run economic fluctuations. 
B)  returns to the view that shifts in aggregate demand affect only the price level. 
C)  argues that the business cycle is caused by "animal spirits." 
D)  focuses on the trade-off between unemployment and inflation.

Question 7

"A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with _____ theory.

Accepted Answer

A)  classical 
B)  Keynesian 
C)  rational expectations 
D)  monetarist 
A)  classical 
B)  Keynesian 
C)  rational expectations 
D)  monetarist

Question 8

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

Accepted Answer

A)  unemployment can be constantly decreased as long as expectations of inflation are kept low. 
B)  the natural rate of unemployment limits what monetary and fiscal policy can accomplish. 
C)  the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was a mistake. 
D)  the only effective policy is to maintain a constant growth rate of the money supply. 
A)  unemployment can be constantly decreased as long as expectations of inflation are kept low. 
B)  the natural rate of unemployment limits what monetary and fiscal policy can accomplish. 
C)  the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was a mistake. 
D)  the only effective policy is to maintain a constant growth rate of the money supply.

Question 9

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool.
II) the effectiveness of economic policy is limited by the political business cycle.

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 10

According to Keynesian theory:

Accepted Answer

A)  the long-run and short-run aggregate supply curves are identical. 
B)  a decrease in aggregate demand leads to decreases in output and prices in the short run. 
C)  a decrease in aggregate demand will decrease prices but not output in the short run. 
D)  the short run is relatively unimportant. 
A)  the long-run and short-run aggregate supply curves are identical. 
B)  a decrease in aggregate demand leads to decreases in output and prices in the short run. 
C)  a decrease in aggregate demand will decrease prices but not output in the short run. 
D)  the short run is relatively unimportant.

Question 11

In a liquidity trap:

Accepted Answer

A)  fiscal policy becomes ineffective because of the high budget deficit. 
B)  monetary policy becomes ineffective because the nominal interest rate is close to the zero bound. 
C)  the aggregate price level becomes downwardly sticky. 
D)  any increase in government spending drives out planned investment spending. 
A)  fiscal policy becomes ineffective because of the high budget deficit. 
B)  monetary policy becomes ineffective because the nominal interest rate is close to the zero bound. 
C)  the aggregate price level becomes downwardly sticky. 
D)  any increase in government spending drives out planned investment spending.

Question 12

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve _____, the price level falls, and aggregate output _____.

Accepted Answer

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

Question 13

The political business cycle refers to policies that:

Accepted Answer

A)  slow down the economy in election years. 
B)  keep the economy on a constant growth path. 
C)  speed the economy up in election years. 
D)  run surpluses in election years. 
A)  slow down the economy in election years. 
B)  keep the economy on a constant growth path. 
C)  speed the economy up in election years. 
D)  run surpluses in election years.

Question 14

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Accepted Answer

A) True 
 B)False

Question 15

Under which conditions do some macroeconomists believe the natural rate hypothesis does NOT work?

Accepted Answer

A)  periods of rapidly rising inflation 
B)  high but constant inflation 
C)  low or negative inflation 
D)  high economic growth 
A)  periods of rapidly rising inflation 
B)  high but constant inflation 
C)  low or negative inflation 
D)  high economic growth

Question 16

Keynes emphasized short-run effects of aggregate demand on aggregate output.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions:  
-(Figure: Fiscal Policy and the End of the Great Depression) Refer to Figure: Fiscal Policy and the End of the Great Depression. The period from 1939 through 1943 would seem to indicate that in the short run a large increase in government deficit spending can _____ the unemployment rate.

Accepted Answer

A)  reduce 
B)  increase 
C)  not affect 
D)  reduce or increase 
A)  reduce 
B)  increase 
C)  not affect 
D)  reduce or increase

Question 18

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Accepted Answer

A)  maturity transformation. 
B)  shadow banking. 
C)  quantitative easing. 
D)  debt overhang. 
A)  maturity transformation. 
B)  shadow banking. 
C)  quantitative easing. 
D)  debt overhang.

Question 19

Monetarists argue that:

Accepted Answer

A)  the impact lag for monetary policy is short and predictable. 
B)  stabilization policies may actually be destabilizing. 
C)  the Federal Reserve System should use active monetary policy. 
D)  active monetary policy should be used to reinforce active fiscal policy. 
A)  the impact lag for monetary policy is short and predictable. 
B)  stabilization policies may actually be destabilizing. 
C)  the Federal Reserve System should use active monetary policy. 
D)  active monetary policy should be used to reinforce active fiscal policy.

Question 20

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

Accepted Answer

A)  classical macroeconomics. 
B)  Keynesian macroeconomics. 
C)  monetarism. 
D)  the Great Moderation consensus. 
A)  classical macroeconomics. 
B)  Keynesian macroeconomics. 
C)  monetarism. 
D)  the Great Moderation consensus.

The slump that followed the 2008 financial crisis is called the Great Modernization.

Real business cycle theory contends that the:

The _____ hypothesis is that macroeconomic policy should be used to stabilize the economy rather than to permanently decrease the unemployment rate.

According to Keynesian economics, a tax cut will _ aggregate demand and output by _.

Which statement does NOT describe the Great Moderation consensus among macroeconomists?

New classical economics:

"A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with _____ theory.

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool. II) the effectiveness of economic policy is limited by the political business cycle.

According to Keynesian theory:

In a liquidity trap:

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve _, the price level falls, and aggregate output _.

The political business cycle refers to policies that:

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Under which conditions do some macroeconomists believe the natural rate hypothesis does NOT work?

Keynes emphasized short-run effects of aggregate demand on aggregate output.

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Monetarists argue that:

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

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 slump that followed the 2008 financial crisis is called the Great Modernization.

Real business cycle theory contends that the:

The _____ hypothesis is that macroeconomic policy should be used to stabilize the economy rather than to permanently decrease the unemployment rate.

According to Keynesian economics, a tax cut will _____ aggregate demand and output by _____.

Which statement does NOT describe the Great Moderation consensus among macroeconomists?

New classical economics:

"A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with _____ theory.

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool. II) the effectiveness of economic policy is limited by the political business cycle.

According to Keynesian theory:

In a liquidity trap:

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve _____, the price level falls, and aggregate output _____.

The political business cycle refers to policies that:

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Under which conditions do some macroeconomists believe the natural rate hypothesis does NOT work?

Keynes emphasized short-run effects of aggregate demand on aggregate output.

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Monetarists argue that:

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

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

According to Keynesian economics, a tax cut will _ aggregate demand and output by _.

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve _, the price level falls, and aggregate output _.