Question 1

Suppose the U.S.economy experiences stagflation.An expansionary fiscal policy

Accepted Answer

A) increases real GDP and lowers inflation. 
B) has no effect on real GDP but raises inflation. 
C) increases real GDP and aggravates inflation. 
D) increases real GDP and has no effect on inflation. 
A) increases real GDP and lowers inflation. 
B) has no effect on real GDP but raises inflation. 
C) increases real GDP and aggravates inflation. 
D) increases real GDP and has no effect on inflation.

Question 2

When did policy makers in the U.S.first use fiscal policy with the intent of manipulating Aggregate demand to move the economy to its potential level of real GDP?

Accepted Answer

A) during the Roosevelt administration 
B) during the Truman administration 
C) during the Eisenhower administration 
D) during the Kennedy administration 
A) during the Roosevelt administration 
B) during the Truman administration 
C) during the Eisenhower administration 
D) during the Kennedy administration

Question 3

In developing his macroeconomic theory, Keynes

Accepted Answer

A) focused primarily on how potential GDP can change over time. 
B) focused on how fiscal policy can change potential output. 
C) was concerned with output gaps and how they could be eliminated. 
D) was primarily concerned with the supply-side of the economy and how producer behavior led to output gaps. 
A) focused primarily on how potential GDP can change over time. 
B) focused on how fiscal policy can change potential output. 
C) was concerned with output gaps and how they could be eliminated. 
D) was primarily concerned with the supply-side of the economy and how producer behavior led to output gaps.

Question 4

The worst economic downturn in the United States in the twentieth century occurred during the 1930s.

Accepted Answer

A) True 
 B)False

Question 5

Keynes believed that wages and prices were sticky.Therefore, a rightward shift of the
Aggregate demand curve would cause

Accepted Answer

A) a decrease in the level of income. 
B) an increase in the unemployment level. 
C) a change in the long-run aggregate supply curve. 
D) an increase in employment, production, and income. 
A) a decrease in the level of income. 
B) an increase in the unemployment level. 
C) a change in the long-run aggregate supply curve. 
D) an increase in employment, production, and income.

Question 6

Which of the following is true about the Classical theory and the Monetarist theory with Regards to the impact of changes in the money supply on the economy?

Accepted Answer

A) Both the Classical theory and Monetarism conclude that changes in money supply affect real GDP in the short run and in the long run. 
B) Both the Classical theory and Monetarism conclude that changes in money supply do not affect real GDP in the short run but will affect real GDP in the long run. 
C) Both the Classical theory and Monetarism conclude that changes in money supply affect nominal GDP in the long run. 
D) Both the Classical theory and Monetarism conclude that changes in money supply affect nominal GDP in the short run and real GDP in the long run. 
A) Both the Classical theory and Monetarism conclude that changes in money supply affect real GDP in the short run and in the long run. 
B) Both the Classical theory and Monetarism conclude that changes in money supply do not affect real GDP in the short run but will affect real GDP in the long run. 
C) Both the Classical theory and Monetarism conclude that changes in money supply affect nominal GDP in the long run. 
D) Both the Classical theory and Monetarism conclude that changes in money supply affect nominal GDP in the short run and real GDP in the long run.

Question 7

The hypothesis that assumes that individuals form expectations about the future based on Available information and that individuals act on that information is called the

Accepted Answer

A) random expectations theory. 
B) rational information hypothesis. 
C) rational expectations hypothesis. 
D) adaptive expectations hypothesis. 
A) random expectations theory. 
B) rational information hypothesis. 
C) rational expectations hypothesis. 
D) adaptive expectations hypothesis.

Question 8

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 9

Figure 17-3
  
-Refer to Figure 17-3.Suppose the economy is at point a.Assume that (1)the public's expectations are completely rational; (2)markets allocate resources instantaneously; and (3)the economy is at its natural level of employment.The theoretical adjustment path resulting from an increase in aggregate demand according to the rational expectations hypothesis is

Accepted Answer

A) a to c to d. 
B) a to b to d. 
C) a to d. 
D) a to b and back to a. 
A) a to c to d. 
B) a to b to d. 
C) a to d. 
D) a to b and back to a.

Question 10

Classical economics is based primarily on the works of John Maynard Keynes.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is true about the Great Depression?

Accepted Answer

A) Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B) Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C) The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D) The Great Depression could be explained by classical economic theory. 
A) Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand. 
B) Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years. 
C) The Great Depression of 1929 was considered to be a normal stage of business cycles. 
D) The Great Depression could be explained by classical economic theory.

Question 12

The monetarist school of economics believes that changes in the money supply are the primary causes of changes in nominal GDP.

Accepted Answer

A) True 
 B)False

Question 13

The inability of the government to stabilize the economy in the 1970s when real GDP has fallen, but inflation has remained high, led Robert Lucas to challenge the Keynesian macroeconomic policy prescriptions.Which of the following is the main tenet of his argument?

Accepted Answer

A) Active stabilization policies tend to be destabilizing because of the long policy lags and consequently, slow down the economy's self correction. 
B) There is no role for active stabilization policies because they do not take into account rational choices by individuals; failure to do so generally cancels the impact of fiscal and monetary policies. 
C) Individuals respond in predictable ways to their changing economic environment; active stabilization interferes with people's ability to respond to changing economic conditions. 
D) The economy is inherently stable and any role for stabilization policy should be limited to those that affect long-run aggregate supply to promote economic growth and not aggregate demand. 
A) Active stabilization policies tend to be destabilizing because of the long policy lags and consequently, slow down the economy's self correction. 
B) There is no role for active stabilization policies because they do not take into account rational choices by individuals; failure to do so generally cancels the impact of fiscal and monetary policies. 
C) Individuals respond in predictable ways to their changing economic environment; active stabilization interferes with people's ability to respond to changing economic conditions. 
D) The economy is inherently stable and any role for stabilization policy should be limited to those that affect long-run aggregate supply to promote economic growth and not aggregate demand.

Question 14

New Keynesian economics

Accepted Answer

A) favor stabilization policies that shift the short-run aggregate supply curve to keep the economy operating close to its potential output. 
B) advocates policies that increase wage and price flexibility so that the economy can self-correct quickly. 
C) stresses the stickiness of prices and the need for activist stabilization policies through the aggregate demand management policies to move the economy to its potential output. 
D) stresses the importance of operating at potential output and with shifting the long-run aggregate supply curve to the right. 
A) favor stabilization policies that shift the short-run aggregate supply curve to keep the economy operating close to its potential output. 
B) advocates policies that increase wage and price flexibility so that the economy can self-correct quickly. 
C) stresses the stickiness of prices and the need for activist stabilization policies through the aggregate demand management policies to move the economy to its potential output. 
D) stresses the importance of operating at potential output and with shifting the long-run aggregate supply curve to the right.

Question 15

John Maynard Keynes argued that _______

Accepted Answer

A) flexibility in wages and prices could block adjustments to full employment. 
B) stickiness in wages and prices could block adjustments to full employment. 
C) wage and price rigidities were caused by producer and consumer expectations about future prices. 
D) wage and price rigidities could be eliminated by government wage and price setting. 
A) flexibility in wages and prices could block adjustments to full employment. 
B) stickiness in wages and prices could block adjustments to full employment. 
C) wage and price rigidities were caused by producer and consumer expectations about future prices. 
D) wage and price rigidities could be eliminated by government wage and price setting.

Question 16

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 relatively rigid. 
C) the economy's level of employment can remain substantially below its natural level over a prolonged period of time. 
D) the economy can achieve full employment on its own, though there could be temporary 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 relatively rigid. 
C) the economy's level of employment can remain substantially below its natural level over a prolonged period of time. 
D) the economy can achieve full employment on its own, though there could be temporary periods in which employment falls below the natural level.

Question 17

Keynes argued that the surest way to bring the economy out of the Great Depression was to

Accepted Answer

A) rely on expansionary monetary policy. 
B) use expansionary fiscal policy. 
C) impose wage controls to prevent drastic decreases in disposable income. 
D) leave the economy alone and flexible wages and prices would eventually lead to increases in income and employment. 
A) rely on expansionary monetary policy. 
B) use expansionary fiscal policy. 
C) impose wage controls to prevent drastic decreases in disposable income. 
D) leave the economy alone and flexible wages and prices would eventually lead to increases in income and employment.

Question 18

Writing in 1752, David Hume's essay, "Of Money,"

Accepted Answer

A) showed that changes in the money supply were unrelated to short-run fluctuations in output. 
B) suggested that an increase in the money supply would be favorable to industry in the long-run. 
C) echoed John Maynard Keynes' view that sticky prices would lead to short-run deviations of output from the level of potential real GDP. 
D) was unable to unravel the nature and role of money in the economy because he ignored sticky prices. 
A) showed that changes in the money supply were unrelated to short-run fluctuations in output. 
B) suggested that an increase in the money supply would be favorable to industry in the long-run. 
C) echoed John Maynard Keynes' view that sticky prices would lead to short-run deviations of output from the level of potential real GDP. 
D) was unable to unravel the nature and role of money in the economy because he ignored sticky prices.

Question 19

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression?
I.reduction in wealth
II.reduced consumer confidence
III.tax increases
IV.an expansionary monetary policy that caused inflation

Accepted Answer

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

Question 20

Figure 17-1
  
-Refer to Figure 17-1.Which point best illustrates where the U.S.economy was just prior to the Great Depression?

Accepted Answer

A) point j 
B) point k 
C) point m 
D) point n 
A) point j 
B) point k 
C) point m 
D) point n

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

Suppose the U.S.economy experiences stagflation.An expansionary fiscal policy

When did policy makers in the U.S.first use fiscal policy with the intent of manipulating Aggregate demand to move the economy to its potential level of real GDP?

In developing his macroeconomic theory, Keynes

The worst economic downturn in the United States in the twentieth century occurred during the 1930s.

Keynes believed that wages and prices were sticky.Therefore, a rightward shift of the Aggregate demand curve would cause

Which of the following is true about the Classical theory and the Monetarist theory with Regards to the impact of changes in the money supply on the economy?

The hypothesis that assumes that individuals form expectations about the future based on Available information and that individuals act on that information is called the

Monetarists argue that

Classical economics is based primarily on the works of John Maynard Keynes.

Which of the following is true about the Great Depression?

The monetarist school of economics believes that changes in the money supply are the primary causes of changes in nominal GDP.

The inability of the government to stabilize the economy in the 1970s when real GDP has fallen, but inflation has remained high, led Robert Lucas to challenge the Keynesian macroeconomic policy prescriptions.Which of the following is the main tenet of his argument?

New Keynesian economics

John Maynard Keynes argued that _______

A fundamental feature of early classical macroeconomics is that

Keynes argued that the surest way to bring the economy out of the Great Depression was to

Writing in 1752, David Hume's essay, "Of Money,"

Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? I.reduction in wealth II.reduced consumer confidence III.tax increases IV.an expansionary monetary policy that caused inflation

Figure 17-1 -Refer to Figure 17-1.Which point best illustrates where the U.S.economy was just prior to the Great Depression?

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

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