Exam 17: A Brief History of Macroeconomic Thought and Policy

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

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?

Keynesian economics was mostly concerned with the short run.

Monetarists argue that

In 2009, the Obama administration advocated and Congress passed a massive spending and tax relief package of about $800 billion to stimulate aggregate demand.This policy would be favored by

A fundamental feature of early classical macroeconomics is that

In 1979, the CPI rose 13.5%, the highest inflation rate recorded in the twentieth century in the U.S.Public opinion polls in 1979 consistently showed that most people regarded inflation as the leading problem facing the U.S.How did the Fed respond to this situation?

The rational expectations hypothesis assumes that individuals form expectations about the future based on the information available to them and that they act on those expectations.

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

In the late 1970s, oil prices rose sharply and at the same time, U.S.policymakers pursued expansionary fiscal and monetary policies.As a result, real GDP stayed at potential output, while the implicit price deflator jumped 8.1%.If the Fed's goal was to reduce inflation, which of the following would also occur?

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

While Keynes argued that the Great Depression was caused by government interference in the economy, monetarists contended that it was the result of a decline in investment expenditures.

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.Suppose the economy moved to a short-run equilibrium at point k.Over time, the economy moved to point j.What could have caused the economy to move to point j?

New Keynesian economics

The monetarists school of economics believes that changes in

New Keynesian economics is built on I.the Keynesian approach II.the monetarist approach III.the new classical approach

Prior to the Great Depression, the dominant economic view held that

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?

The close relationship between M2 and nominal GDP in the 1960s and 1970s vanished from the 1980s through 2015.Which of the following contributed to this breakdown? I.deregulation of the banking industry II.introduction of new financial products (not included in M2) Which allowed people to transfer funds into their checking accounts as and when needed III.monetary policy lags

In the 1970s, the U.S.economy experienced both inflation and unemployment.This led economists to recognize that I.stabilization was a much more difficult task than many economists anticipated. II.the Keynesian doctrine correctly asserts that reducing inflation and unemployment can be addressed by fiscal policies. III.shifts in aggregate demand could frustrate policymaking efforts whereas shifts in the short-run aggregate supply were more easily addressed.