Question 1

According to Keynes, the remedy for a recessionary gap is

Accepted Answer

A) to subsidize big business. 
B) to increase aggregate supply. 
C) to boost aggregate demand. 
D) to lower business taxes. 
A) to subsidize big business. 
B) to increase aggregate supply. 
C) to boost aggregate demand. 
D) to lower business taxes.

Question 2

The Smoot-Hawley Tariff Act of 1930 contributed to the collapse of global trade

Accepted Answer

A) by raising tariffs on products imported into the U.S., which in turn led to retaliatory trade-restricting legislation around the world. 
B) by imposing economic sanctions against third-world countries. 
C) by banning foreign consumer products. 
D) by raising tariffs on exports, which deterred domestic producers from selling in foreign markets. 
A) by raising tariffs on products imported into the U.S., which in turn led to retaliatory trade-restricting legislation around the world. 
B) by imposing economic sanctions against third-world countries. 
C) by banning foreign consumer products. 
D) by raising tariffs on exports, which deterred domestic producers from selling in foreign markets.

Question 3

Use the following to answer questions 
Exhibit: Responses to a Decrease in Aggregate Demand  
-(Exhibit: Responses to a Decrease in Aggregate Demand)
The economy is initially in equilibrium at point (1)
.Now suppose a reduction in the money supply causes aggregate demand to fall to AD2.The below potential output level of Y2 will exist as long as

Accepted Answer

A) policymakers refrain from using discretionary policies. 
B) workers fail to recognize that their real wages have increased and that they need to accept lower nominal wages. 
C) economic agents do not respond to falling prices by increasing aggregate demand back to AD1. 
D) producers do not increase the price of their output. 
A) policymakers refrain from using discretionary policies. 
B) workers fail to recognize that their real wages have increased and that they need to accept lower nominal wages. 
C) economic agents do not respond to falling prices by increasing aggregate demand back to AD1. 
D) producers do not increase the price of their output.

Question 4

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 5

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 6

Monetarists argue that

Accepted Answer

A) the Federal Reserve System should institute a prescribed rate of growth in the money supply. 
B) since velocity is unstable, a fixed annual increase in the money supply will exacerbate inflation in the long run. 
C) self-correction is less effective than activist monetary policy. 
D) policymakers should use monetary policy rather than fiscal policy to stabilize the economy. 
A) the Federal Reserve System should institute a prescribed rate of growth in the money supply. 
B) since velocity is unstable, a fixed annual increase in the money supply will exacerbate inflation in the long run. 
C) self-correction is less effective than activist monetary policy. 
D) policymakers should use monetary policy rather than fiscal policy to stabilize the economy.

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

Use the following to answer questions 
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments)
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

Use the following to answer questions 
Exhibit: Economic Adjustments  
-Classical economics is based primarily on the works of John Maynard Keynes.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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

Accepted Answer

A) The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929. 
B) The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment. 
C) The fall in aggregate demand at the start of the Great Depression began with the collapse in investment. 
D) The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods. 
A) The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929. 
B) The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment. 
C) The fall in aggregate demand at the start of the Great Depression began with the collapse in investment. 
D) The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods.

Question 13

Economists who subscribe to the rational expectations hypothesis

Accepted Answer

A) base their belief on the economic assumption that people behave in ways that maximize their utility. 
B) believe that governments can influence macroeconomic outcomes better than the private sector. 
C) argue that discretionary monetary and fiscal policy can control fluctuations in economic activity adequately. 
D) say that people are constantly revising their expectations about future prices based on what transpired in the past and therefore over time, fluctuations in economic activity will cease to occur. 
A) base their belief on the economic assumption that people behave in ways that maximize their utility. 
B) believe that governments can influence macroeconomic outcomes better than the private sector. 
C) argue that discretionary monetary and fiscal policy can control fluctuations in economic activity adequately. 
D) say that people are constantly revising their expectations about future prices based on what transpired in the past and therefore over time, fluctuations in economic activity will cease to occur.

Question 14

The Case in Point titled "Tough Medicine" stated that the Keynesian prescription for an inflationary gap was to

Accepted Answer

A) apply contractionary fiscal or monetary policy, or both. 
B) combine contractionary fiscal policy with expansionary monetary policy. 
C) combine expansionary fiscal policy with contractionary monetary policy. 
D) decrease the money supply in order to shift the SRAS curve to the left. 
A) apply contractionary fiscal or monetary policy, or both. 
B) combine contractionary fiscal policy with expansionary monetary policy. 
C) combine expansionary fiscal policy with contractionary monetary policy. 
D) decrease the money supply in order to shift the SRAS curve to the left.

Question 15

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 16

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 17

Milton Friedman was a leader and major proponent of

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 18

One distinguishing feature of new Keynesian economics (from earlier schools of thought)
is the greater use of microeconomic analysis in macroeconomic analysis.

Accepted Answer

A) True 
 B)False

Question 19

According to new classical economics, individuals will respond to expansionary monetary
Policy by

Accepted Answer

A) incorrectly forecasting what will happen to the price level and employment. 
B) predicting no change in the rate of inflation because they adjust quickly. 
C) predicting a lower rate of inflation and revising their expectations about future prices accordingly. 
D) predicting a higher rate of inflation and revising their expectations about future prices. 
A) incorrectly forecasting what will happen to the price level and employment. 
B) predicting no change in the rate of inflation because they adjust quickly. 
C) predicting a lower rate of inflation and revising their expectations about future prices accordingly. 
D) predicting a higher rate of inflation and revising their expectations about future prices.

Question 20

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Accepted Answer

A) Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies. 
B) aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output. 
C) aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction. 
D) fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure. 
A) Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies. 
B) aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output. 
C) aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction. 
D) fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure.

According to Keynes, the remedy for a recessionary gap is

The Smoot-Hawley Tariff Act of 1930 contributed to the collapse of global trade

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

In the new classical view,

Monetarists argue that

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

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

Use the following to answer questions Exhibit: Economic Adjustments -Classical economics is based primarily on the works of John Maynard Keynes.

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

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

Economists who subscribe to the rational expectations hypothesis

The Case in Point titled "Tough Medicine" stated that the Keynesian prescription for an inflationary gap was to

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

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?

Milton Friedman was a leader and major proponent of

One distinguishing feature of new Keynesian economics (from earlier schools of thought) is the greater use of microeconomic analysis in macroeconomic analysis.

According to new classical economics, individuals will respond to expansionary monetary Policy by

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

Inequality, Poverty, and Discrimination

Filters

Exam 17: A Brief History of Macroeconomic Thought and Policy

According to Keynes, the remedy for a recessionary gap is

The Smoot-Hawley Tariff Act of 1930 contributed to the collapse of global trade

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

In the new classical view,

Monetarists argue that

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

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

Use the following to answer questions Exhibit: Economic Adjustments -Classical economics is based primarily on the works of John Maynard Keynes.

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

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

Economists who subscribe to the rational expectations hypothesis

The Case in Point titled "Tough Medicine" stated that the Keynesian prescription for an inflationary gap was to

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

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?

Milton Friedman was a leader and major proponent of

One distinguishing feature of new Keynesian economics (from earlier schools of thought) is the greater use of microeconomic analysis in macroeconomic analysis.

According to new classical economics, individuals will respond to expansionary monetary Policy by

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

Inequality, Poverty, and Discrimination

Filters