Question 1

According to the Keynesian theory of income and employment,

Accepted Answer

A) the economy automatically tends toward equilibrium at the level of full employment. 
B) the economy never tends toward equilibrium. 
C) the economy may be in equilibrium at less than full employment. 
D) the economy's level of employment is unrelated to its level of income. 
A) the economy automatically tends toward equilibrium at the level of full employment. 
B) the economy never tends toward equilibrium. 
C) the economy may be in equilibrium at less than full employment. 
D) the economy's level of employment is unrelated to its level of income. C

Question 2

In the 1970s the U.S.economy experienced a novel set of macroeconomic outcomes: rising Price level and falling output.This experience led policymakers to

Accepted Answer

A) aggregate demand was more important than aggregate supply in determining the economy's output level. 
B) acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance. 
C) conclude that fiscal policy alone was enough to stabilize the economy. 
D) conclude that being a vital input, oil prices should be controlled by the government. 
A) aggregate demand was more important than aggregate supply in determining the economy's output level. 
B) acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance. 
C) conclude that fiscal policy alone was enough to stabilize the economy. 
D) conclude that being a vital input, oil prices should be controlled by the government. B

Question 3

The General Theory of Employment, Interest, and Money was written by

Accepted Answer

A) Robert Lucas. 
B) David Ricardo. 
C) John Maynard Keynes. 
D) Thomas Malthus. 
A) Robert Lucas. 
B) David Ricardo. 
C) John Maynard Keynes. 
D) Thomas Malthus. C

Question 4

Suppose the economy is initially in long-run equilibrium.Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies.Which of the following will occur as a result of these two events?

Accepted Answer

A) The price level will necessarily rise but the effect on output is indeterminate. 
B) Real GDP must necessarily fall but the effect on the price level is indeterminate. 
C) The price level and real GDP must rise. 
D) The price level must rise and real GDP must fall. 
A) The price level will necessarily rise but the effect on output is indeterminate. 
B) Real GDP must necessarily fall but the effect on the price level is indeterminate. 
C) The price level and real GDP must rise. 
D) The price level must rise and real GDP must fall.

Question 5

Which of the following is true about new Keynesian economics?
I.It incorporates monetarist ideas about the importance of monetary policy.
II.It incorporates new classical ideas about the importance of aggregate supply.
III.It includes a greater use of microeconomic analysis in macroeconomic analysis than Keynesian economics.
IV.Unlike Keynesian economics, it is opposed to active stabilization policies.

Accepted Answer

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

Question 6

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true about Keynes' macroeconomic theory?

Accepted Answer

A) Keynes agreed that the notion that the economy would achieve the potential level of output in the long run is crucial to explaining prolonged recessions. 
B) Keynes dismissed the notion that the economy would achieve full employment in the long run as irrelevant in explaining prolonged recessions. 
C) Keynes stressed the notion that the economy would achieve price stability in the long run only if expansionary fiscal and monetary policies were used to address recessions. 
D) Keynes argued that the economy would achieve full employment in the long run because of wage and price flexibility. 
A) Keynes agreed that the notion that the economy would achieve the potential level of output in the long run is crucial to explaining prolonged recessions. 
B) Keynes dismissed the notion that the economy would achieve full employment in the long run as irrelevant in explaining prolonged recessions. 
C) Keynes stressed the notion that the economy would achieve price stability in the long run only if expansionary fiscal and monetary policies were used to address recessions. 
D) Keynes argued that the economy would achieve full employment in the long run because of wage and price flexibility.

Question 8

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Accepted Answer

A) investment 
B) consumption 
C) government purchases 
D) transfer payments 
A) investment 
B) consumption 
C) government purchases 
D) transfer payments

Question 9

Keynesian theory was a response to the prevailing

Accepted Answer

A) classical theory that held that the economy could suffer from a period of sustained unemployment. 
B) classical theory that held that the economy is self-correcting. 
C) monetarist theory that held that the economy is self-correcting. 
D) monetarist theory that held that monetary policy should be used to return the economy to its potential output. 
A) classical theory that held that the economy could suffer from a period of sustained unemployment. 
B) classical theory that held that the economy is self-correcting. 
C) monetarist theory that held that the economy is self-correcting. 
D) monetarist theory that held that monetary policy should be used to return the economy to its potential output.

Question 10

Figure 17-2
  
-Refer to Figure 17-2.The economy is initially in equilibrium at point (1).Now suppose a reduction in the money supply causes aggregate demand to fall to AD2.Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

Accepted Answer

A) Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2.Consumers respond by increasing their demand for output and firms in turn increase their supply to meet the rising demand.The economy moves back to point (1). 
B) Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2.To prevent further reductions in the price level, firms increase output at the same time as consumers increase aggregate demand.The economy moves to point (4), bypassing point (3). 
C) Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P3.They adjust their expectations accordingly.Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand falls, bypassing point (2). 
D) Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P4.They adjust their expectations accordingly.Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand rises, moving the economy to point (4). 
A) Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2.Consumers respond by increasing their demand for output and firms in turn increase their supply to meet the rising demand.The economy moves back to point (1). 
B) Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2.To prevent further reductions in the price level, firms increase output at the same time as consumers increase aggregate demand.The economy moves to point (4), bypassing point (3). 
C) Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P3.They adjust their expectations accordingly.Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand falls, bypassing point (2). 
D) Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P4.They adjust their expectations accordingly.Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand rises, moving the economy to point (4).

Question 11

A survey of economists suggested that the _______ approach has emerged as the preferred approach to macroeconomic analysis.

Accepted Answer

A) Keynesian 
B) monetarist 
C) new classical 
D) new Keynesian 
A) Keynesian 
B) monetarist 
C) new classical 
D) new Keynesian

Question 12

The body of economic thought associated with David Ricardo is called new classical
economics.

Accepted Answer

A) True 
 B)False

Question 13

Consider the following statement: "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

Accepted Answer

A) classical theory. 
B) Keynesian theory. 
C) new classical theory. 
D) monetarist theory. 
A) classical theory. 
B) Keynesian theory. 
C) new classical theory. 
D) monetarist theory.

Question 14

According to the monetarists, after an initial increase in aggregate demand, the ____ curve Will tend to shift ______, reflecting the effect of ______ in adjusting to the long run.

Accepted Answer

A) short-run aggregate supply; leftward; higher wages 
B) short-run aggregate supply; leftward; lower wages 
C) aggregate demand; rightward; income 
D) aggregate demand; lower; price level 
A) short-run aggregate supply; leftward; higher wages 
B) short-run aggregate supply; leftward; lower wages 
C) aggregate demand; rightward; income 
D) aggregate demand; lower; price level

Question 15

New classical economics is similar to classical economics in that both theories

Accepted Answer

A) differ from classical economics in that the latter focuses on the determination of long-run aggregate supply while the former focus on the determination of short-run aggregate supply. 
B) are similar to classical economics in that both theories incorporate expectations in their analysis of the economy in the long-run. 
C) differ from classical economics in that the latter focuses on producers' expectations only while the latter also includes consumers' expectations in the determination of long-run macroeconomic equilibrium. 
D) are similar to classical economics in that both theories focus on the determination of long-run aggregate supply and the economy's ability to reach this level of output quickly. 
A) differ from classical economics in that the latter focuses on the determination of long-run aggregate supply while the former focus on the determination of short-run aggregate supply. 
B) are similar to classical economics in that both theories incorporate expectations in their analysis of the economy in the long-run. 
C) differ from classical economics in that the latter focuses on producers' expectations only while the latter also includes consumers' expectations in the determination of long-run macroeconomic equilibrium. 
D) are similar to classical economics in that both theories focus on the determination of long-run aggregate supply and the economy's ability to reach this level of output quickly.

Question 16

In the new classical view,

Accepted Answer

A) a change in the money supply will affect real GDP only if people anticipate the policy change. 
B) monetary policy can never change real GDP. 
C) using monetary policy will change real GDP only if the policy takes people by surprise. 
D) fiscal policy has more chance of success than monetary policy. 
A) a change in the money supply will affect real GDP only if people anticipate the policy change. 
B) monetary policy can never change real GDP. 
C) using monetary policy will change real GDP only if the policy takes people by surprise. 
D) fiscal policy has more chance of success than monetary policy.

Question 17

David Ricardo focused on the economy in the _______ and on the forces that determined an Economy's _______.

Accepted Answer

A) short run; full employment level of output 
B) long run; potential output 
C) short run; market gluts 
D) short run; money supply 
A) short run; full employment level of output 
B) long run; potential output 
C) short run; market gluts 
D) short run; money supply

Question 18

During the 1960s, Keynesian economic policies led to lower unemployment rates and higher prices.

Accepted Answer

A) True 
 B)False

Question 19

The Smoot-Hawley Tariff Act of 1930

Accepted Answer

A) was passed to protect domestic jobs by imposing fines on firms that imported raw materials from abroad. 
B) mandated the federal budget be balanced. 
C) dramatically raised tariffs on products imported into the U.S.and led to retaliatory trade- restricting legislation around the world. 
D) subsidized domestic firms which produced products for export. 
A) was passed to protect domestic jobs by imposing fines on firms that imported raw materials from abroad. 
B) mandated the federal budget be balanced. 
C) dramatically raised tariffs on products imported into the U.S.and led to retaliatory trade- restricting legislation around the world. 
D) subsidized domestic firms which produced products for export.

Question 20

In the initial stages of the Great Depression, fiscal authorities responded to the decline in
Output by

Accepted Answer

A) increasing government purchases to stimulate aggregate demand. 
B) raising taxes to increase government revenue. 
C) lowering taxes to encourage spending. 
D) subsidizing private production to create jobs. 
A) increasing government purchases to stimulate aggregate demand. 
B) raising taxes to increase government revenue. 
C) lowering taxes to encourage spending. 
D) subsidizing private production to create jobs.

Exam 32: Macro a Brief History of Macroeconomic Thought and Policy

According to the Keynesian theory of income and employment,

In the 1970s the U.S.economy experienced a novel set of macroeconomic outcomes: rising Price level and falling output.This experience led policymakers to

The General Theory of Employment, Interest, and Money was written by

Suppose the economy is initially in long-run equilibrium.Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies.Which of the following will occur as a result of these two events?

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

Which of the following statements is true about Keynes' macroeconomic theory?

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Keynesian theory was a response to the prevailing

Figure 17-2 -Refer to Figure 17-2.The economy is initially in equilibrium at point (1).Now suppose a reduction in the money supply causes aggregate demand to fall to AD2.Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

A survey of economists suggested that the _______ approach has emerged as the preferred approach to macroeconomic analysis.

The body of economic thought associated with David Ricardo is called new classical economics.

Consider the following statement: "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

According to the monetarists, after an initial increase in aggregate demand, the ____ curve Will tend to shift ______, reflecting the effect of ______ in adjusting to the long run.

New classical economics is similar to classical economics in that both theories

In the new classical view,

David Ricardo focused on the economy in the _______ and on the forces that determined an Economy's _______.

During the 1960s, Keynesian economic policies led to lower unemployment rates and higher prices.

The Smoot-Hawley Tariff Act of 1930

In the initial stages of the Great Depression, fiscal authorities responded to the decline in Output by

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Economic Development

Socialist Economies in Transition

Filters

Figure 17-2 -Refer to Figure 17-2.The economy is initially in equilibrium at point (1).Now suppose a reduction in the money supply causes aggregate demand to fall to AD₂.Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

According to the monetarists, after an initial increase in aggregate demand, the curve Will tend to shift , reflecting the effect of ____ in adjusting to the long run.

David Ricardo focused on the economy in the _ and on the forces that determined an Economy's _.