Question 1

The main consequence of Keynesian economics is:

Accepted Answer

A) the development of economic policy rules. 
B) the rationale for macroeconomic policy activism. 
C) a consensus that fiscal policy is ineffective. 
D) a consensus that monetary policy is always effective. 
A) the development of economic policy rules. 
B) the rationale for macroeconomic policy activism. 
C) a consensus that fiscal policy is ineffective. 
D) a consensus that monetary policy is always effective. B

Question 2

The theory of rational expectations contends that policy activism is:

Accepted Answer

A) not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B) not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted. 
C) warranted, because discretionary policies have a strong effect on real output. 
D) warranted, because expectations are rational only in the short run. 
A) not warranted, because we don't know enough about the workings of the economy to stabilize it. 
B) not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted. 
C) warranted, because discretionary policies have a strong effect on real output. 
D) warranted, because expectations are rational only in the short run. B

Question 3

Classical macroeconomics was based largely on the foundation of:

Accepted Answer

A) flexible wages and prices. 
B) persistent unemployment. 
C) government intervention in the market. 
D) Adam Smith's model of imperfectly competitive markets. 
A) flexible wages and prices. 
B) persistent unemployment. 
C) government intervention in the market. 
D) Adam Smith's model of imperfectly competitive markets. A

Question 4

An hypothesis that individuals base their expectations on available information and act on that information is called the:

Accepted Answer

A) irrational forecasts hypothesis. 
B) rational information theory hypothesis. 
C) rational expectations hypothesis. 
D) rational abstention hypothesis. 
A) irrational forecasts hypothesis. 
B) rational information theory hypothesis. 
C) rational expectations hypothesis. 
D) rational abstention hypothesis.

Question 5

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

Accepted Answer

As a monetarist, the economist believes

Question 6

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

Accepted Answer

A) classical macroeconomics. 
B) Keynesian macroeconomics. 
C) monetarism. 
D) the Great Moderation consensus. 
A) classical macroeconomics. 
B) Keynesian macroeconomics. 
C) monetarism. 
D) the Great Moderation consensus.

Question 7

Which one of the following statements is TRUE?

Accepted Answer

A) Keynes treated short-run macroeconomics as a minor issue. 
B) Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate output, employment, and prices, whereas the classical economists focused on the long-run determination of the aggregate price level. 
C) The classical economists believed that the short-run aggregate supply curve was upward sloping. 
D) The classical economists emphasized the short-run effects of shifts in aggregate demand on aggregate output, whereas Keynes focused on the long-run determination of the aggregate price level. 
A) Keynes treated short-run macroeconomics as a minor issue. 
B) Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate output, employment, and prices, whereas the classical economists focused on the long-run determination of the aggregate price level. 
C) The classical economists believed that the short-run aggregate supply curve was upward sloping. 
D) The classical economists emphasized the short-run effects of shifts in aggregate demand on aggregate output, whereas Keynes focused on the long-run determination of the aggregate price level.

Question 8

_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate price level, ignoring any _____ effects on aggregate output.

Accepted Answer

A) Keynesian; long-run; monetary; short-run 
B) Classical; short-run; monetary; long-run 
C) Classical; long-run; monetary; short-run 
D) Keynesian; long-run; fiscal; short-run 
A) Keynesian; long-run; monetary; short-run 
B) Classical; short-run; monetary; long-run 
C) Classical; long-run; monetary; short-run 
D) Keynesian; long-run; fiscal; short-run

Question 9

The velocity of money is equal to:

Accepted Answer

A) nominal GDP divided by the money supply. 
B) real GDP divided by the aggregate price level. 
C) nominal wages divided by the aggregate price level. 
D) real GDP divided by the money supply. 
A) nominal GDP divided by the money supply. 
B) real GDP divided by the aggregate price level. 
C) nominal wages divided by the aggregate price level. 
D) real GDP divided by the money supply.

Question 10

The predominant economic thinking up to the 1930s 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 11

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.

Accepted Answer

This economist believes that the source

Question 12

Which of the following statements is FALSE? Keynesian economics:

Accepted Answer

A) emphasizes the effects of shifts in aggregate demand on aggregate output. 
B) focuses the attention of economists on situations in which the short-run aggregate supply curve slopes upward. 
C) holds "animal spirits" mainly responsible for business cycles. 
D) holds that changes in business confidence have no effect on either the aggregate price level or aggregate output. 
A) emphasizes the effects of shifts in aggregate demand on aggregate output. 
B) focuses the attention of economists on situations in which the short-run aggregate supply curve slopes upward. 
C) holds "animal spirits" mainly responsible for business cycles. 
D) holds that changes in business confidence have no effect on either the aggregate price level or aggregate output.

Question 13

Because classical economists stressed the long run, they:

Accepted Answer

A) perceived the economy as being mostly self-adjusting. 
B) favored the use of fiscal policy over monetary policy. 
C) expected the government to purge the rot from the system. 
D) favored the use of monetary policy over fiscal policy. 
A) perceived the economy as being mostly self-adjusting. 
B) favored the use of fiscal policy over monetary policy. 
C) expected the government to purge the rot from the system. 
D) favored the use of monetary policy over fiscal policy.

Question 14

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Accepted Answer

A) perceived the economy as being mostly self-adjusting. 
B) favored the use of monetary policy over fiscal policy. 
C) considered technological progress the answer to any economic slump. 
D) favored the use of fiscal policy over monetary policy. 
A) perceived the economy as being mostly self-adjusting. 
B) favored the use of monetary policy over fiscal policy. 
C) considered technological progress the answer to any economic slump. 
D) favored the use of fiscal policy over monetary policy.

Question 15

Policy makers before the Great Depression were:

Accepted Answer

A) uncertain about the appropriate measure to use against a recession in the absence of any clear theory about the cause of business cycles. 
B) using both fiscal and monetary policies to combat the harmful effects of recession on output and employment. 
C) against using monetary policies to fight the economic downturns caused by business cycles. 
D) in favor of using only fiscal policies to fight the economic booms caused by business cycles. 
A) uncertain about the appropriate measure to use against a recession in the absence of any clear theory about the cause of business cycles. 
B) using both fiscal and monetary policies to combat the harmful effects of recession on output and employment. 
C) against using monetary policies to fight the economic downturns caused by business cycles. 
D) in favor of using only fiscal policies to fight the economic booms caused by business cycles.

Question 16

Fiscal policy is usually:

Accepted Answer

A) more political than monetary policy. 
B) less political than monetary policy. 
C) neutral like monetary policy. 
D) having the same impact on all citizens. 
A) more political than monetary policy. 
B) less political than monetary policy. 
C) neutral like monetary policy. 
D) having the same impact on all citizens.

Question 17

A monetarist rule would be to vary the money growth rate between set limits, such as 3% to 5% annual growth.

Accepted Answer

A) True 
 B)False

Question 18

Since 1982, the Federal Reserve has:

Accepted Answer

A) pursued a passive monetary policy. 
B) pursued a discretionary monetary policy, which has led to large swings in the money supply. 
C) pursued a discretionary monetary policy, which has stabilized interest rates. 
D) abandoned interest rate targeting. 
A) pursued a passive monetary policy. 
B) pursued a discretionary monetary policy, which has led to large swings in the money supply. 
C) pursued a discretionary monetary policy, which has stabilized interest rates. 
D) abandoned interest rate targeting.

Question 19

The natural rate hypothesis suggests there are limits to what macroeconomic policy can achieve.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions :
Scenario: The Velocity Equation
Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2.
-(Scenario: The Velocity Equation) Look at the scenario The Velocity Equation. If the velocity of money is 2, the money supply is:

Accepted Answer

A) $20 trillion. 
B) $10 trillion. 
C) $5 trillion. 
D) $40 trillion. 
A) $20 trillion. 
B) $10 trillion. 
C) $5 trillion. 
D) $40 trillion.

The main consequence of Keynesian economics is:

The theory of rational expectations contends that policy activism is:

Classical macroeconomics was based largely on the foundation of:

An hypothesis that individuals base their expectations on available information and act on that information is called the:

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

Which one of the following statements is TRUE?

___ macroeconomists focused on the _ effects of _ policy on the aggregate price level, ignoring any ___ effects on aggregate output.

The velocity of money is equal to:

The predominant economic thinking up to the 1930s was:

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.

Which of the following statements is FALSE? Keynesian economics:

Because classical economists stressed the long run, they:

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Policy makers before the Great Depression were:

Fiscal policy is usually:

A monetarist rule would be to vary the money growth rate between set limits, such as 3% to 5% annual growth.

Since 1982, the Federal Reserve has:

The natural rate hypothesis suggests there are limits to what macroeconomic policy can achieve.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 18: Events and Ideas

The main consequence of Keynesian economics is:

The theory of rational expectations contends that policy activism is:

Classical macroeconomics was based largely on the foundation of:

An hypothesis that individuals base their expectations on available information and act on that information is called the:

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

Which one of the following statements is TRUE?

_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate price level, ignoring any _____ effects on aggregate output.

The velocity of money is equal to:

The predominant economic thinking up to the 1930s was:

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.

Which of the following statements is FALSE? Keynesian economics:

Because classical economists stressed the long run, they:

Because Keynes's theory recognized the problem of interest rates being at the zero bound (the liquidity trap), it:

Policy makers before the Great Depression were:

Fiscal policy is usually:

A monetarist rule would be to vary the money growth rate between set limits, such as 3% to 5% annual growth.

Since 1982, the Federal Reserve has:

The natural rate hypothesis suggests there are limits to what macroeconomic policy can achieve.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

___ macroeconomists focused on the _ effects of _ policy on the aggregate price level, ignoring any ___ effects on aggregate output.