Question 1

The theory of rational expectations contends that policy activism is:

Accepted Answer

A)  not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B)  not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted. 
C)  warranted because discretionary policies have a strong effect on real output. 
D)  warranted because expectations are rational only in the short run. 
A)  not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B)  not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted. 
C)  warranted because discretionary policies have a strong effect on real output. 
D)  warranted because expectations are rational only in the short run.

Question 2

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

Accepted Answer

A)  supply-side 
B)  demand-side 
C)  new classical 
D)  new Keynesian 
A)  supply-side 
B)  demand-side 
C)  new classical 
D)  new Keynesian

Question 3

Which president was a proponent of supply-side economics?

Accepted Answer

A)  Herbert Hoover 
B)  Franklin Roosevelt 
C)  Jimmy Carter 
D)  Ronald Reagan 
A)  Herbert Hoover 
B)  Franklin Roosevelt 
C)  Jimmy Carter 
D)  Ronald Reagan

Question 4

Which statement is broadly agreed upon by modern macroeconomists?

Accepted Answer

A)  Monetary and fiscal policy can both be effective at decreasing unemployment in the short run but not in the long run. 
B)  Discretionary fiscal policy is typically an effective remedy for a recessionary gap except in special circumstances. 
C)  The central bank should set a specific target rate of inflation. 
D)  A monetary rule should be set by the central bank. 
A)  Monetary and fiscal policy can both be effective at decreasing unemployment in the short run but not in the long run. 
B)  Discretionary fiscal policy is typically an effective remedy for a recessionary gap except in special circumstances. 
C)  The central bank should set a specific target rate of inflation. 
D)  A monetary rule should be set by the central bank.

Question 5

Monetarists argue that discretionary monetary policy does more harm than good.

Accepted Answer

A) True 
 B)False

Question 6

The velocity of money is equal to:

Accepted Answer

A)  nominal GDP divided by the money supply. 
B)  real GDP divided by the aggregate price level. 
C)  nominal wages divided by the aggregate price level. 
D)  real GDP divided by the money supply. 
A)  nominal GDP divided by the money supply. 
B)  real GDP divided by the aggregate price level. 
C)  nominal wages divided by the aggregate price level. 
D)  real GDP divided by the money supply.

Question 7

A fundamental feature of early classical macroeconomics is that:

Accepted Answer

A)  aggregate demand and aggregate income are usually unequal. 
B)  prices of inputs and outputs are usually relatively rigid. 
C)  the economy's level of employment can remain substantially below its natural level over a long period. 
D)  the economy can achieve full employment on its own, though there may be short periods in which employment falls below the natural level. 
A)  aggregate demand and aggregate income are usually unequal. 
B)  prices of inputs and outputs are usually relatively rigid. 
C)  the economy's level of employment can remain substantially below its natural level over a long period. 
D)  the economy can achieve full employment on its own, though there may be short periods in which employment falls below the natural level.

Question 8

Proponents of the theory of rational expectations contend that:

Accepted Answer

A)  people make rational forecasts using all existing information. 
B)  business cycles are generally caused by shifts in aggregate demand. 
C)  full employment is rarely achieved. 
D)  stickiness of prices is the primary cause of inflation. 
A)  people make rational forecasts using all existing information. 
B)  business cycles are generally caused by shifts in aggregate demand. 
C)  full employment is rarely achieved. 
D)  stickiness of prices is the primary cause of inflation.

Question 9

The money velocity equation is stated as:

Accepted Answer

A)  M * V = P * Y. 
B)  M * P = V * Y. 
C)  M * Y = V * P. 
D)  M * Y * P = V. 
A)  M * V = P * Y. 
B)  M * P = V * Y. 
C)  M * Y = V * P. 
D)  M * Y * P = V.

Question 10

The idea of sticky wages and prices is most closely associated with:

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 11

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 is increased, but the Federal Reserve does NOT expand the money supply. According to this model:

Accepted Answer

A)  real GDP will expand just as much as if the Federal Reserve had expanded the money supply. 
B)  real GDP will decrease because the Federal Reserve did not expand the money supply. 
C)  real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply. 
D)  interest rates will decrease. 
A)  real GDP will expand just as much as if the Federal Reserve had expanded the money supply. 
B)  real GDP will decrease because the Federal Reserve did not expand the money supply. 
C)  real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply. 
D)  interest rates will decrease.

Question 12

According to classical economists, the short-run aggregate supply curve is _____, while according to Keynesian economists, the short-run aggregate supply curve is _____.

Accepted Answer

A)  vertical; upward sloping 
B)  downward sloping; vertical 
C)  vertical; vertical 
D)  upward sloping; horizontal 
A)  vertical; upward sloping 
B)  downward sloping; vertical 
C)  vertical; vertical 
D)  upward sloping; horizontal

Question 13

Classical macroeconomics was based largely on the foundation of:

Accepted Answer

A)  flexible wages and prices. 
B)  persistent unemployment. 
C)  government intervention in the market. 
D)  Adam Smith's model of imperfectly competitive markets. 
A)  flexible wages and prices. 
B)  persistent unemployment. 
C)  government intervention in the market. 
D)  Adam Smith's model of imperfectly competitive markets.

Question 14

Challenges to Keynesian economics were based on the:

Accepted Answer

A)  fact that lags in fiscal policy make it relatively ineffective. 
B)  liquidity trap, which makes fiscal policy ineffective. 
C)  possibility of a trade-off between inflation and unemployment. 
D)  usefulness of discretionary fiscal policy. 
A)  fact that lags in fiscal policy make it relatively ineffective. 
B)  liquidity trap, which makes fiscal policy ineffective. 
C)  possibility of a trade-off between inflation and unemployment. 
D)  usefulness of discretionary fiscal policy.

Question 15

Since 2012, Japan has _____ government spending and _____ monetary expansion, resulting in ____ growth.

Accepted Answer

A)  cut; increased; strong 
B)  increased; increased; very mild 
C)  cut; decreased; record-setting 
D)  increased; decreased; no 
A)  cut; increased; strong 
B)  increased; increased; very mild 
C)  cut; decreased; record-setting 
D)  increased; decreased; no

Question 16

Scenario: The Velocity Equation Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2. If the velocity of money is 2, the money supply is:

Accepted Answer

A)  $20 trillion. 
B)  $10 trillion. 
C)  $5 trillion. 
D)  $40 trillion. 
A)  $20 trillion. 
B)  $10 trillion. 
C)  $5 trillion. 
D)  $40 trillion.

Question 17

In A Monetary History of the United States, 1867-1960, Milton Friedman and Anna Schwartz argued that:

Accepted Answer

A)  only fiscal policy could be effective in managing the economy. 
B)  the Depression was caused by irresponsible government spending. 
C)  monetary policy should play a key role in stabilizing the economy. 
D)  the Federal Reserve should be abolished. 
A)  only fiscal policy could be effective in managing the economy. 
B)  the Depression was caused by irresponsible government spending. 
C)  monetary policy should play a key role in stabilizing the economy. 
D)  the Federal Reserve should be abolished.

Question 18

A very low rate of inflation during a recession can lead to:

Accepted Answer

A)  a liquidity trap, which makes monetary policy ineffective. 
B)  a liquidity trap, which makes monetary policy effective. 
C)  government budget deficits. 
D)  government budget surpluses. 
A)  a liquidity trap, which makes monetary policy ineffective. 
B)  a liquidity trap, which makes monetary policy effective. 
C)  government budget deficits. 
D)  government budget surpluses.

Question 19

A policy of expansionary austerity involves increasing government spending to increase private-sector confidence, leading to an increase in output and employment.

Accepted Answer

A) True 
 B)False

Question 20

According to Keynes, changes in "animal spirits" will affect actual output through changes in:

Accepted Answer

A)  business investment spending. 
B)  government expenditure and taxes. 
C)  money supply and interest rates. 
D)  labor productivity and technological progress. 
A)  business investment spending. 
B)  government expenditure and taxes. 
C)  money supply and interest rates. 
D)  labor productivity and technological progress.

The theory of rational expectations contends that policy activism is:

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

Which president was a proponent of supply-side economics?

Which statement is broadly agreed upon by modern macroeconomists?

Monetarists argue that discretionary monetary policy does more harm than good.

The velocity of money is equal to:

A fundamental feature of early classical macroeconomics is that:

Proponents of the theory of rational expectations contend that:

The money velocity equation is stated as:

The idea of sticky wages and prices is most closely associated with:

According to classical economists, the short-run aggregate supply curve is _, while according to Keynesian economists, the short-run aggregate supply curve is _.

Classical macroeconomics was based largely on the foundation of:

Challenges to Keynesian economics were based on the:

Since 2012, Japan has ___ government spending and _ monetary expansion, resulting in __ growth.

Scenario: The Velocity Equation Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2. If the velocity of money is 2, the money supply is:

In A Monetary History of the United States, 1867-1960, Milton Friedman and Anna Schwartz argued that:

A very low rate of inflation during a recession can lead to:

A policy of expansionary austerity involves increasing government spending to increase private-sector confidence, leading to an increase in output and employment.

According to Keynes, changes in "animal spirits" will affect actual output through changes in:

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 theory of rational expectations contends that policy activism is:

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

Which president was a proponent of supply-side economics?

Which statement is broadly agreed upon by modern macroeconomists?

Monetarists argue that discretionary monetary policy does more harm than good.

The velocity of money is equal to:

A fundamental feature of early classical macroeconomics is that:

Proponents of the theory of rational expectations contend that:

The money velocity equation is stated as:

The idea of sticky wages and prices is most closely associated with:

According to classical economists, the short-run aggregate supply curve is _____, while according to Keynesian economists, the short-run aggregate supply curve is _____.

Classical macroeconomics was based largely on the foundation of:

Challenges to Keynesian economics were based on the:

Since 2012, Japan has _____ government spending and _____ monetary expansion, resulting in ____ growth.

Scenario: The Velocity Equation Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2. If the velocity of money is 2, the money supply is:

In A Monetary History of the United States, 1867-1960, Milton Friedman and Anna Schwartz argued that:

A very low rate of inflation during a recession can lead to:

A policy of expansionary austerity involves increasing government spending to increase private-sector confidence, leading to an increase in output and employment.

According to Keynes, changes in "animal spirits" will affect actual output through changes in:

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 classical economists, the short-run aggregate supply curve is _, while according to Keynesian economists, the short-run aggregate supply curve is _.

Since 2012, Japan has ___ government spending and _ monetary expansion, resulting in __ growth.