Question 1

The body of economic thought associated with 19th century economist

Accepted Answer

A) David Ricardo is called Ricardian economics. 
B) Adam Smith is called Smithian economics. 
C) David Ricardo is called classical economics. 
D) Adam Smith is called classical economics. 
A) David Ricardo is called Ricardian economics. 
B) Adam Smith is called Smithian economics. 
C) David Ricardo is called classical economics. 
D) Adam Smith is called classical economics.

Question 2

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression)
During the Great Depression, aggregate demand declined sharply.As a result, the economy moved to

Accepted Answer

A) point k creating a recessionary gap equal to (Ym - Yk). 
B) point k creating a recessionary gap equal to (YP - Yk). 
C) point j creating a recessionary gap equal to (YP - Yj). 
D) point j creating a recessionary gap equal to (Yn - Yj). 
A) point k creating a recessionary gap equal to (Ym - Yk). 
B) point k creating a recessionary gap equal to (YP - Yk). 
C) point j creating a recessionary gap equal to (YP - Yj). 
D) point j creating a recessionary gap equal to (Yn - Yj).

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

An important distinction between the classical and Keynesian view of the economy is that

Accepted Answer

A) Keynes stressed the supply side of an economy while classical economists stressed the demand side of the economy. 
B) classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by shifts in aggregate demand. 
C) Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy. 
D) classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by wage and price rigidities. 
A) Keynes stressed the supply side of an economy while classical economists stressed the demand side of the economy. 
B) classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by shifts in aggregate demand. 
C) Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy. 
D) classical economists argued that output gaps were caused by shifts in the long-run aggregate supply while Keynes' maintained that output gaps were created by wage and price rigidities.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

In 1965 during the Johnson administration, the U.S.economy was headed toward an inflationary gap.Which of the following policies would an economist recommend?

Accepted Answer

A) An open market purchase 
B) A tax increase 
C) A tax cut 
D) Increase defense spending 
A) An open market purchase 
B) A tax increase 
C) A tax cut 
D) Increase defense spending

Question 7

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 8

The rational expectations hypothesis suggests that monetary policy, even though it will
affect the aggregate demand curve, might have no effect on real GDP.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression)
Suppose the U.S.economy is at point j.With the onset of World War II, expansionary fiscal policies forced by the war pushed into an inflationary gap.Which of the following best illustrates this event?

Accepted Answer

A) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - YP). 
B) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym -YP). 
C) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym -Yj). 
D) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - Yj). 
A) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - YP). 
B) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym -YP). 
C) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Ym -Yj). 
D) expansionary fiscal policies shifted the aggregate demand curve, creating an inflationary gap equal to (Yn - Yj).

Question 11

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Accepted Answer

A) an increase in the price level and unemployment. 
B) a decrease in the price level and employment. 
C) an increase in the price level and no change in employment. 
D) a decrease in the price level and no change in employment. 
A) an increase in the price level and unemployment. 
B) a decrease in the price level and employment. 
C) an increase in the price level and no change in employment. 
D) a decrease in the price level and no change in employment.

Question 12

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression  
-(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression)
The Great Depression began with a shift of

Accepted Answer

A) AD2 to AD1.  
B) AD1 to AD2 . 
C) SRAS2 to SRAS1.  
D) YP to Yk. 
A) AD2 to AD1.  
B) AD1 to AD2 . 
C) SRAS2 to SRAS1.  
D) YP to Yk.

Question 13

Use the following to answer questions 
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments)
Suppose the economy is at point a.The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

Accepted Answer

A) point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B) point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C) point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D) point a to point c whereas new Keynesian economics suggests that it will move point a to point d. 
A) point a to point d whereas new Keynesian economics suggests that it will move point a to point b. 
B) point a to point d whereas new Keynesian economics suggests that it will move point a to point c. 
C) point a to point b whereas new Keynesian economics suggests that it will move point a to point d. 
D) point a to point c whereas new Keynesian economics suggests that it will move point a to point d.

Question 14

The theory that dominated macroeconomic thinking in the 1960s was

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 15

According to Milton Friedman, any divergence in unemployment from its natural rate is
Temporary because

Accepted Answer

A) anticipated price changes affect nominal wages in the short run but workers will rectify this over time. 
B) unanticipated price changes affect real wages in the short run but workers will rectify this over time. 
C) anticipated price changes affect real wages in the short run but workers will rectify this over time. 
D) unanticipated price changes create inflation which is addressed by policymakers over time. 
A) anticipated price changes affect nominal wages in the short run but workers will rectify this over time. 
B) unanticipated price changes affect real wages in the short run but workers will rectify this over time. 
C) anticipated price changes affect real wages in the short run but workers will rectify this over time. 
D) unanticipated price changes create inflation which is addressed by policymakers over time.

Question 16

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 17

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

Accepted Answer

A) monetarism. 
B) new classical economics. 
C) Keynesian economics. 
D) business cycle theory. 
A) monetarism. 
B) new classical economics. 
C) Keynesian economics. 
D) business cycle theory.

Question 18

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.

Question 19

According to early classical macroeconomics, unemployment

Accepted Answer

A) can persist for long periods of time, because wages are inflexible. 
B) could not prevail for long periods of time, because wages are flexible. 
C) can never occur. 
D) could not prevail for long, because the government intervenes to eliminate unemployment. 
A) can persist for long periods of time, because wages are inflexible. 
B) could not prevail for long periods of time, because wages are flexible. 
C) can never occur. 
D) could not prevail for long, because the government intervenes to eliminate unemployment.

Question 20

When consumers and producers operate under rational expectations,

Accepted Answer

A) stabilization policy affects only the short-run aggregate supply curve. 
B) stabilization policy affects only the long-run aggregate supply curve. 
C) shifts in aggregate demand are perfectly anticipated by market participants, negating any attempt by policymakers to shift aggregate demand. 
D) stabilization policy does not affect the short-run aggregate supply curve. 
A) stabilization policy affects only the short-run aggregate supply curve. 
B) stabilization policy affects only the long-run aggregate supply curve. 
C) shifts in aggregate demand are perfectly anticipated by market participants, negating any attempt by policymakers to shift aggregate demand. 
D) stabilization policy does not affect the short-run aggregate supply curve.

The body of economic thought associated with 19th century economist

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply.As a result, the economy moved to

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

An important distinction between the classical and Keynesian view of the economy is that

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

In 1965 during the Johnson administration, the U.S.economy was headed toward an inflationary gap.Which of the following policies would an economist recommend?

The Smoot-Hawley Tariff Act of 1930

The rational expectations hypothesis suggests that monetary policy, even though it will affect the aggregate demand curve, might have no effect on real GDP.

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

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) The Great Depression began with a shift of

Use the following to answer questions Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Suppose the economy is at point a.The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

The theory that dominated macroeconomic thinking in the 1960s was

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

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

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

According to the Keynesian theory of income and employment,

According to early classical macroeconomics, unemployment

When consumers and producers operate under rational expectations,

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

The body of economic thought associated with 19th century economist

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply.As a result, the economy moved to

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

An important distinction between the classical and Keynesian view of the economy is that

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

In 1965 during the Johnson administration, the U.S.economy was headed toward an inflationary gap.Which of the following policies would an economist recommend?

The Smoot-Hawley Tariff Act of 1930

The rational expectations hypothesis suggests that monetary policy, even though it will affect the aggregate demand curve, might have no effect on real GDP.

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

New classical economists argue that unless people are taken by surprise, a decrease in aggregate demand will cause

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) The Great Depression began with a shift of

Use the following to answer questions Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Suppose the economy is at point a.The rational expectations hypothesis suggests that an increase in aggregate demand will result in the economy moving from

The theory that dominated macroeconomic thinking in the 1960s was

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

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

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

According to the Keynesian theory of income and employment,

According to early classical macroeconomics, unemployment

When consumers and producers operate under rational expectations,

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