Question 1

According to the monetarists, deliberate government intervention:

Accepted Answer

A)  will stabilize the economy if the money supply is increased during recessions and decreased during expansions. 
B)  will effectively reduce the unemployment rate below its natural rate. 
C)  will stabilize the economy if the money supply is reduced during recessions and increased during expansions. 
D)  will destabilize the economy only if the government uses fiscal policy to change equilibrium income. 
E)  will destabilize the economy and cause a business cycle of its own, regardless of whether fiscal or monetary policy is used. 
A)  will stabilize the economy if the money supply is increased during recessions and decreased during expansions. 
B)  will effectively reduce the unemployment rate below its natural rate. 
C)  will stabilize the economy if the money supply is reduced during recessions and increased during expansions. 
D)  will destabilize the economy only if the government uses fiscal policy to change equilibrium income. 
E)  will destabilize the economy and cause a business cycle of its own, regardless of whether fiscal or monetary policy is used.

Question 2

Monetarists believe that:

Accepted Answer

A)  the government should follow a fixed rule to change money supply in response to?business cycles. 
B)  the government should not use discretionary monetary policy to achieve its goals of?economic growth and low inflation. 
C)  government intervention should be well thought out and should be used only during recessions. 
D)  government intervention in the economy makes business cycles disappear. 
E)  government intervention policies have only long-run effects. 
A)  the government should follow a fixed rule to change money supply in response to?business cycles. 
B)  the government should not use discretionary monetary policy to achieve its goals of?economic growth and low inflation. 
C)  government intervention should be well thought out and should be used only during recessions. 
D)  government intervention in the economy makes business cycles disappear. 
E)  government intervention policies have only long-run effects.

Question 3

Which of the following schools of thought reject the simple fixed-price model in favor of a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes upward as real GDP approaches its potential level?

Accepted Answer

A)  The new Keynesian 
B)  The monetarist 
C)  The traditional classical 
D)  The new classical 
E)  The Marxist 
A)  The new Keynesian 
B)  The monetarist 
C)  The traditional classical 
D)  The new classical 
E)  The Marxist

Question 4

Which of the following is true from the perspective of the New Keynesian school of thought?

Accepted Answer

A)  Fluctuations in private spending does not affect aggregate demand in an economy. 
B)  Investment spending remains relatively constant irrespective of the supply shocks. 
C)  Fluctuations in aggregate demand are not the primary source of problem for policymakers. 
D)  The government should limit its role to administrative functions. 
E)  Monetary and fiscal policies often fail to restore macroeconomic equilibrium. 
A)  Fluctuations in private spending does not affect aggregate demand in an economy. 
B)  Investment spending remains relatively constant irrespective of the supply shocks. 
C)  Fluctuations in aggregate demand are not the primary source of problem for policymakers. 
D)  The government should limit its role to administrative functions. 
E)  Monetary and fiscal policies often fail to restore macroeconomic equilibrium.

Question 5

Which of the following events challenged Keynesian views, and led to the popularity of Milton Friedman's ideas?

Accepted Answer

A)  The hippie community started advocating socialist values. 
B)  Hard-core republicans came into office. 
C)  The U.S. economy faced high levels of inflation and unemployment simultaneously. 
D)  The oil crisis exploded. 
E)  Countries that followed Friedman's ideas performed better. 
A)  The hippie community started advocating socialist values. 
B)  Hard-core republicans came into office. 
C)  The U.S. economy faced high levels of inflation and unemployment simultaneously. 
D)  The oil crisis exploded. 
E)  Countries that followed Friedman's ideas performed better.

Question 6

Monetarists believe that in the short run:

Accepted Answer

A)  the natural rate of unemployment cannot be changed. 
B)  expansionary monetary policy is ineffective in raising real GDP. 
C)  a change in the money supply is fully reflected in a change in the interest level. 
D)  contractionary monetary policy will decrease unemployment. 
E)  there is a tradeoff between unemployment and inflation. 
A)  the natural rate of unemployment cannot be changed. 
B)  expansionary monetary policy is ineffective in raising real GDP. 
C)  a change in the money supply is fully reflected in a change in the interest level. 
D)  contractionary monetary policy will decrease unemployment. 
E)  there is a tradeoff between unemployment and inflation.

Question 7

_____ is the theory that was popular before _____ changed the face of economics post Great Depression in the 1930s.

Accepted Answer

A)  Classical economics; Milton Friedman 
B)  Keynesian economics; Monetarists 
C)  Classical economics; Keynes 
D)  Monetarist economics; Adam Smith 
E)  Keynesian economics; Milton Friedman 
A)  Classical economics; Milton Friedman 
B)  Keynesian economics; Monetarists 
C)  Classical economics; Keynes 
D)  Monetarist economics; Adam Smith 
E)  Keynesian economics; Milton Friedman

Question 8

Which of the following is the basic tenet of new classical economics?

Accepted Answer

A)  A change in the fiscal policy affects the equilibrium level of real GDP but has no impact on the equilibrium price level. 
B)  A government-induced shift in aggregate demand affects the real GDP only if they are expected by the economic agents. 
C)  A change in aggregate demand affects the aggregate price level only if the aggregate supply curve is perfectly elastic. 
D)  A change in monetary policy affects the equilibrium level of real GDP only if those changes are unexpected. 
E)  An expected change in a monetary or fiscal policy leads to a proportional shift of the long run supply curve. 
A)  A change in the fiscal policy affects the equilibrium level of real GDP but has no impact on the equilibrium price level. 
B)  A government-induced shift in aggregate demand affects the real GDP only if they are expected by the economic agents. 
C)  A change in aggregate demand affects the aggregate price level only if the aggregate supply curve is perfectly elastic. 
D)  A change in monetary policy affects the equilibrium level of real GDP only if those changes are unexpected. 
E)  An expected change in a monetary or fiscal policy leads to a proportional shift of the long run supply curve.

Question 9

According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:

Accepted Answer

A)  increase interest rates, thereby shifting the investment function to the right. 
B)  reduce both consumption and investment spending, thereby eliminating all inflationary?pressures. 
C)  reduce investment spending, thereby stabilizing the aggregate supply shocks. 
D)  stimulate both consumption and investment spending, thereby increasing?aggregate demand. 
E)  shift the aggregate demand curve to the left, thereby reducing the unemployment rate. 
A)  increase interest rates, thereby shifting the investment function to the right. 
B)  reduce both consumption and investment spending, thereby eliminating all inflationary?pressures. 
C)  reduce investment spending, thereby stabilizing the aggregate supply shocks. 
D)  stimulate both consumption and investment spending, thereby increasing?aggregate demand. 
E)  shift the aggregate demand curve to the left, thereby reducing the unemployment rate.

Question 10

According to the new Keynesians:

Accepted Answer

A)  prices adjust to equate demand and supply in every market simultaneously. 
B)  random variations in the money supply are the original source of economic fluctuations. 
C)  unemployment is voluntary. 
D)  aggregate supply shocks can be a prime source of economic instability. 
E)  government policy cannot stabilize the economy. 
A)  prices adjust to equate demand and supply in every market simultaneously. 
B)  random variations in the money supply are the original source of economic fluctuations. 
C)  unemployment is voluntary. 
D)  aggregate supply shocks can be a prime source of economic instability. 
E)  government policy cannot stabilize the economy.

Question 11

Suppose the central bank increases the money supply in an economy unexpectedly during a year. If the current inflation rate in this country is 3.4 percent, then according to new classical economists, the expected inflation rate for the following year would be:

Accepted Answer

A)  3.4 percent. 
B)  less than 3.4 percent. 
C)  2.4 percent, because people form their expectations adaptively. 
D)  around 6.8 percent. 
E)  greater than 3.4 percent. 
A)  3.4 percent. 
B)  less than 3.4 percent. 
C)  2.4 percent, because people form their expectations adaptively. 
D)  around 6.8 percent. 
E)  greater than 3.4 percent.

Question 12

The monetarist assumption that monetary policy cannot change long-run equilibrium income is based on the idea that:

Accepted Answer

A)  the long-run aggregate supply curve is horizontal. 
B)  the long-run Phillips curve is vertical. 
C)  the price level in the long run is fixed. 
D)  the aggregate demand curve cannot shift. 
E)  the long-run Phillips curve is upward-sloping. 
A)  the long-run aggregate supply curve is horizontal. 
B)  the long-run Phillips curve is vertical. 
C)  the price level in the long run is fixed. 
D)  the aggregate demand curve cannot shift. 
E)  the long-run Phillips curve is upward-sloping.

Question 13

According to new classical school of economics, the aggregate supply curve is:

Accepted Answer

A)  horizontal in both the short run and the long run. 
B)  vertical in the short run and upward-sloping in the long run. 
C)  upward-sloping in both the short run and the long run. 
D)  vertical in both the short run and the long run. 
E)  upward-sloping in the short run and vertical in the long run. 
A)  horizontal in both the short run and the long run. 
B)  vertical in the short run and upward-sloping in the long run. 
C)  upward-sloping in both the short run and the long run. 
D)  vertical in both the short run and the long run. 
E)  upward-sloping in the short run and vertical in the long run.

Question 14

Both new classical economists and monetarists disagree with Keynesians about the optimal degree of involvement of the government in determining the equilibrium level of real GDP.

Accepted Answer

A) True 
 B)False

Question 15

Monetarists believe that discretionary monetary policy, and not discretionary fiscal policy, should be used to correct disequilibrium.

Accepted Answer

A) True 
 B)False

Question 16

According to the monetarists, inflation is primarily caused by an increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 17

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

Accepted Answer

A) True 
 B)False

Question 18

The figure given below shows the supply curves with different slopes.?Figure 15.1
  
-Refer to Figure 15.1. Which of the following supply curves represent the supply curve described by the modern Keynesians?

Accepted Answer

A)  S₂ 
B)  S₅ 
C)  S₃ 
D)  S₁ 
E)  S₄ 
A)  S₂ 
B)  S₅ 
C)  S₃ 
D)  S₁ 
E)  S₄

Question 19

According to classical economics:

Accepted Answer

A)  real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply. 
B)  both real GDP and price level are determined by aggregate demand. 
C)  both real GDP and price level are determined by aggregate supply. 
D)  real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand. 
E)  price level cannot be changed as prices and wages are perfectly rigid. 
A)  real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply. 
B)  both real GDP and price level are determined by aggregate demand. 
C)  both real GDP and price level are determined by aggregate supply. 
D)  real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand. 
E)  price level cannot be changed as prices and wages are perfectly rigid.

Question 20

Keynesian economists today favor a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes downward as real GDP approaches its potential level.

Accepted Answer

A) True 
 B)False

Exam 15: Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

According to the monetarists, deliberate government intervention:

Monetarists believe that:

Which of the following schools of thought reject the simple fixed-price model in favor of a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes upward as real GDP approaches its potential level?

Which of the following is true from the perspective of the New Keynesian school of thought?

Which of the following events challenged Keynesian views, and led to the popularity of Milton Friedman's ideas?

Monetarists believe that in the short run:

_____ is the theory that was popular before _____ changed the face of economics post Great Depression in the 1930s.

Which of the following is the basic tenet of new classical economics?

According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:

According to the new Keynesians:

Suppose the central bank increases the money supply in an economy unexpectedly during a year. If the current inflation rate in this country is 3.4 percent, then according to new classical economists, the expected inflation rate for the following year would be:

The monetarist assumption that monetary policy cannot change long-run equilibrium income is based on the idea that:

According to new classical school of economics, the aggregate supply curve is:

Both new classical economists and monetarists disagree with Keynesians about the optimal degree of involvement of the government in determining the equilibrium level of real GDP.

Monetarists believe that discretionary monetary policy, and not discretionary fiscal policy, should be used to correct disequilibrium.

According to the monetarists, inflation is primarily caused by an increase in the money supply.

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

The figure given below shows the supply curves with different slopes.?Figure 15.1 -Refer to Figure 15.1. Which of the following supply curves represent the supply curve described by the modern Keynesians?

According to classical economics:

Keynesian economists today favor a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes downward as real GDP approaches its potential level.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchapterange Rates and Financial Links Between Countries

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