Exam 18: Events and Ideas

Christina believes that shifts in aggregate demand cause a change in both real output and the price level. She believes that an economic recession will not necessarily self-correct in the long run, and therefore she believes that active fiscal and monetary policy is justified to smooth out the business cycle. Christina is best described as a:

According to Keynesian economics, a tax cut will _____ aggregate demand and output by _____.

The experience of the Great Depression led to the widespread acceptance of classical economics.

The recommendation that the government should avoid deficit spending because of the crowding-out effect on investment spending is consistent with _____ macroeconomics.

Which of the following BEST explains why the Fed flirted with monetarism but then gave up?

A monetary policy rule:

According to a Keynesian economist, a recessionary gap should be fixed with:

Most economists now agree that:

In the Keynesian model, prices and nominal wages are _____, the short-run aggregate supply curve is upward sloping, and as a result, an increase in the money supply leads to _____ in the aggregate price level.

According to the Great Moderation consensus, fiscal policy should be the main stabilization tool.

One of the impacts of the budget deficits that resulted from the fiscal stimulus of 2009 was that:

The belief that neither monetary nor fiscal policy can reduce unemployment is consistent with _____ economics.

Macroeconomic policy activism:

In response to the Great Depression, the classical economists:

Classical economists believe that:

In the classical model of the price level, prices are _____, the short-run aggregate supply curve is vertical, and as a result, a decrease in the money supply leads to _____ in the aggregate price level.

According to the classical model:

The set of ideas known as the new Keynesian economics states that:

According to Keynes, changes in business confidence are often responsible for business cycles.

Many economists argued against using discretionary fiscal policy during the Great Recession because interest rates were very low and fiscal policy is ineffective when interest rates are near zero.