Question 1

Keynesian economists didn't oppose monetary policy, but they felt that it was ineffective in fighting a recession.

Accepted Answer

A) True 
 B)False

Question 2

If real business cycle theory uses an upward-sloping aggregate _____ curve, aggregate _____ is _____.

Accepted Answer

A)  demand; supply; relevant 
B)  demand; supply; irrelevant 
C)  supply; demand; irrelevant 
D)  supply; demand; relevant 
A)  demand; supply; relevant 
B)  demand; supply; irrelevant 
C)  supply; demand; irrelevant 
D)  supply; demand; relevant

Question 3

If the Fed funds rate is only 1%, the economy is dangerously close to:

Accepted Answer

A)  an inflationary spiral. 
B)  a liquidity trap. 
C)  very high unemployment. 
D)  another recession. 
A)  an inflationary spiral. 
B)  a liquidity trap. 
C)  very high unemployment. 
D)  another recession.

Question 4

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

Accepted Answer

A) True 
 B)False

Question 5

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

Accepted Answer

A)  prices. 
B)  interest rates. 
C)  the money supply. 
D)  business investment. 
A)  prices. 
B)  interest rates. 
C)  the money supply. 
D)  business investment.

Question 6

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Accepted Answer

A) True 
 B)False

Question 7

Keynes's theory did not endorse the use of monetary policy during the Great Depression because:

Accepted Answer

A)  at the time, the nominal interest rate was very close to zero. 
B)  during WWII, the convertibility of the pound sterling into gold was suspended. 
C)  under the gold standard, the zero bound on nominal interest rates did not exist. 
D)  monetary expansions were impossible under a gold standard. 
A)  at the time, the nominal interest rate was very close to zero. 
B)  during WWII, the convertibility of the pound sterling into gold was suspended. 
C)  under the gold standard, the zero bound on nominal interest rates did not exist. 
D)  monetary expansions were impossible under a gold standard.

Question 8

Use the following to answer questions:  
-(Figure: Fiscal Policy with a Fixed Money Supply) Refer to Figure: Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E1. Now government deficit spending increases and the Federal Reserve expands the money supply. According to this model:

Accepted Answer

A)  real GDP might increase in the short run, but inflation can lead to a return to the original level of real GDP in the long run. 
B)  real GDP will decrease because the government expanded deficit spending. 
C)  real GDP will decrease, but not as much as if the Federal Reserve had contracted the money supply. 
D)  interest rates will decrease. 
A)  real GDP might increase in the short run, but inflation can lead to a return to the original level of real GDP in the long run. 
B)  real GDP will decrease because the government expanded deficit spending. 
C)  real GDP will decrease, but not as much as if the Federal Reserve had contracted the money supply. 
D)  interest rates will decrease.

Question 9

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

Accepted Answer

A) True 
 B)False

Question 10

The Great Moderation consensus about macroeconomic policy is that monetary policy:

Accepted Answer

A)  is effective. 
B)  can reduce the unemployment rate below the natural rate. 
C)  makes the economy unstable. 
D)  should follow a policy rule. 
A)  is effective. 
B)  can reduce the unemployment rate below the natural rate. 
C)  makes the economy unstable. 
D)  should follow a policy rule.

Question 11

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

Accepted Answer

A)  Ronald Reagan. 
B)  John Maynard Keynes. 
C)  Adam Smith. 
D)  Barack Obama. 
A)  Ronald Reagan. 
B)  John Maynard Keynes. 
C)  Adam Smith. 
D)  Barack Obama.

Question 12

The main reason that the Great Depression ended was:

Accepted Answer

A)  effective monetary policy by the Fed under the leadership of Paul Volcker. 
B)  the defeat of Adolf Hitler in Germany in the 1930s. 
C)  Winston Churchill's foreign policy. 
D)  deficit spending in the United States to finance World War II. 
A)  effective monetary policy by the Fed under the leadership of Paul Volcker. 
B)  the defeat of Adolf Hitler in Germany in the 1930s. 
C)  Winston Churchill's foreign policy. 
D)  deficit spending in the United States to finance World War II.

Question 13

The Great Moderation consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy:

Accepted Answer

A)  is ineffective because the public expects it. 
B)  is harmful because it only increases the aggregate price level. 
C)  has little impact on aggregate demand because of liquidity traps. 
D)  can be used to increase aggregate demand but at the cost of higher aggregate prices. 
A)  is ineffective because the public expects it. 
B)  is harmful because it only increases the aggregate price level. 
C)  has little impact on aggregate demand because of liquidity traps. 
D)  can be used to increase aggregate demand but at the cost of higher aggregate prices.

Question 14

The belief that neither monetary nor fiscal policy can reduce unemployment is consistent with _____ economics.

Accepted Answer

A)  Keynesian 
B)  classical 
C)  rational expectations 
D)  Great Moderation consensus 
A)  Keynesian 
B)  classical 
C)  rational expectations 
D)  Great Moderation consensus

Question 15

Which theory is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

Accepted Answer

A)  Keynesian theory 
B)  new classical economics 
C)  new Keynesian theory 
D)  real business cycle theory 
A)  Keynesian theory 
B)  new classical economics 
C)  new Keynesian theory 
D)  real business cycle theory

Question 16

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of the political business cycle.

Accepted Answer

A) True 
 B)False

Question 17

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

Accepted Answer

A)  budget deficits. 
B)  lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap. 
C)  budget surpluses. 
D)  sacrificing equity for efficiency. 
A)  budget deficits. 
B)  lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap. 
C)  budget surpluses. 
D)  sacrificing equity for efficiency.

Question 18

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 real GDP is:

Accepted Answer

A)  $60 billion. 
B)  $30 billion. 
C)  $20 billion. 
D)  $15 billion. 
A)  $60 billion. 
B)  $30 billion. 
C)  $20 billion. 
D)  $15 billion.

Question 19

Milton Friedman and Anna Schwartz wrote:

Accepted Answer

A)  The Great Depression. 
B)  The General Theory of Employment, Interest, and Money. 
C)  The Wealth of Nations. 
D)  A Monetary History of the United States, 1867-1960. 
A)  The Great Depression. 
B)  The General Theory of Employment, Interest, and Money. 
C)  The Wealth of Nations. 
D)  A Monetary History of the United States, 1867-1960.

Question 20

Because classical economists stressed the long run, they:

Accepted Answer

A)  perceived the economy as being mostly self-adjusting. 
B)  favored the use of fiscal policy over monetary policy. 
C)  expected the government to purge the rot from the system. 
D)  favored the use of monetary policy over fiscal policy. 
A)  perceived the economy as being mostly self-adjusting. 
B)  favored the use of fiscal policy over monetary policy. 
C)  expected the government to purge the rot from the system. 
D)  favored the use of monetary policy over fiscal policy.

Keynesian economists didn't oppose monetary policy, but they felt that it was ineffective in fighting a recession.

If real business cycle theory uses an upward-sloping aggregate ___ curve, aggregate _ is ___.

If the Fed funds rate is only 1%, the economy is dangerously close to:

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Keynes's theory did not endorse the use of monetary policy during the Great Depression because:

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

The Great Moderation consensus about macroeconomic policy is that monetary policy:

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

The main reason that the Great Depression ended was:

The Great Moderation consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy:

The belief that neither monetary nor fiscal policy can reduce unemployment is consistent with _____ economics.

Which theory is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of the political business cycle.

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

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 real GDP is:

Milton Friedman and Anna Schwartz wrote:

Because classical economists stressed the long run, they:

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

Keynesian economists didn't oppose monetary policy, but they felt that it was ineffective in fighting a recession.

If real business cycle theory uses an upward-sloping aggregate _____ curve, aggregate _____ is _____.

If the Fed funds rate is only 1%, the economy is dangerously close to:

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Keynes's theory did not endorse the use of monetary policy during the Great Depression because:

Use the following to answer questions: -(Figure: Fiscal Policy with a Fixed Money Supply) Refer to Figure: Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E1. Now government deficit spending increases and the Federal Reserve expands the money supply. According to this model:

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

The Great Moderation consensus about macroeconomic policy is that monetary policy:

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

The main reason that the Great Depression ended was:

The Great Moderation consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy:

The belief that neither monetary nor fiscal policy can reduce unemployment is consistent with _____ economics.

Which theory is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of the political business cycle.

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

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 real GDP is:

Milton Friedman and Anna Schwartz wrote:

Because classical economists stressed the long run, they:

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

If real business cycle theory uses an upward-sloping aggregate ___ curve, aggregate _ is ___.