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

During the 1970s when the U.S.experienced rising inflation and unemployment, economists began to reconsider the significance of aggregate supply as well.

During the Great Depression, investment plummeted because

New classical economists believe that the potential output of the economy is stable.

In the early 1990s, although the U.S.economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap.What was the reason?

New classical theory asserts that, because people have rational expectations, if a policy of reducing the money supply is used

Which of the following statements is true about the Great Depression?

The events of the 1980s and early 1990s appear to have been consistent with the hypotheses of either the monetarist or new classical schools.

According to Keynes, the remedy for a recessionary gap is

Monetarists argue that

In the 1970s, the U.S.economy saw sharp changes in real GDP and in the price level.This presented a challenge to policymakers and to economists because these outcomes could not be explained by a Keynesian analysis.

Throughout the 1960s U.S.policymakers adopted stimulative monetary and fiscal policies.

The economic theory based on an analysis of individual maximizing choices is called

Supply-side economics is the belief that fiscal policy can be used to stimulate long-run economic growth.

Monetarists contend that a consistent relationship exists between changes in the money supply and changes in nominal GDP.

Monetarists conclude that the primary determinant of changes in nominal GDP is

Economists who subscribe to the rational expectations hypothesis

According to new classical economics, short-run stabilization policy works only if it surprises people.

Keynesian economics was mostly concerned with the short run.

Which of the following is true about Keynesians and Monetarists with regards to policy intervention?

In 1963, President Kennedy proposed a tax cut to stimulate the economy.In 1963, Congress approved the tax cut.The one-year period between these two events is attributed to