Question 1

In a liquidity trap:

Accepted Answer

A) fiscal policy becomes ineffective because of the high budget deficit. 
B) monetary policy becomes ineffective because the nominal interest rate is close to the zero bound. 
C) the aggregate price level becomes downwardly sticky. 
D) any increase in government spending drives out planned investment spending. 
A) fiscal policy becomes ineffective because of the high budget deficit. 
B) monetary policy becomes ineffective because the nominal interest rate is close to the zero bound. 
C) the aggregate price level becomes downwardly sticky. 
D) any increase in government spending drives out planned investment spending.

Question 2

Use the following to answer questions :
Figure: Fiscal Policy and the End of the Great Depression  
-(Figure: Fiscal Policy and the End of the Great Depression) Look at the figure Fiscal Policy and the End of the Great Depression. The period from 1936 to 1938 would seem to indicate that in the short run a decrease in government deficit spending can _____ the unemployment rate.

Accepted Answer

A) reduce 
B) increase 
C) not affect 
D) eliminate 
A) reduce 
B) increase 
C) not affect 
D) eliminate

Question 3

Keynesians believed that the economy could get out of the Great Depression if:

Accepted Answer

A) monetary policy focused on the use of a monetary rule. 
B) fiscal authorities worked at balancing the budget. 
C) government spent enough to offset the drop in both consumption and investment spending. 
D) expansionary monetary policy was used. 
A) monetary policy focused on the use of a monetary rule. 
B) fiscal authorities worked at balancing the budget. 
C) government spent enough to offset the drop in both consumption and investment spending. 
D) expansionary monetary policy was used.

Question 4

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

Accepted Answer

A) classical 
B) Keynesian 
C) monetarist 
D) Great Moderation consensus 
A) classical 
B) Keynesian 
C) monetarist 
D) Great Moderation consensus

Question 5

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

Accepted Answer

A) supply-side 
B) demand-side 
C) new classical 
D) new Keynesian 
A) supply-side 
B) demand-side 
C) new classical 
D) new Keynesian

Question 6

The recommendation that a decrease in taxes will alleviate a recessionary gap is consistent with _____ macroeconomics.

Accepted Answer

A) classical 
B) Keynesian 
C) monetarist 
D) Great Moderation consensus 
A) classical 
B) Keynesian 
C) monetarist 
D) Great Moderation consensus

Question 7

The Great Moderation consensus is the school of thought that monetary policy should be the main tool of stabilization policy and is skeptical about the use of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 8

According to Keynesian theory:

Accepted Answer

A) the long-run and short-run aggregate supply curves are identical. 
B) a decrease in aggregate demand leads to decreases in output and prices in the short run. 
C) a decrease in aggregate demand will decrease prices but not output in the short run. 
D) the short run is relatively unimportant. 
A) the long-run and short-run aggregate supply curves are identical. 
B) a decrease in aggregate demand leads to decreases in output and prices in the short run. 
C) a decrease in aggregate demand will decrease prices but not output in the short run. 
D) the short run is relatively unimportant.

Question 9

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Accepted Answer

A) True 
 B)False

Question 10

Friedman favored:

Accepted Answer

A) activist monetary policy to stabilize the economy. 
B) activist fiscal policy coupled with a neutral monetary policy. 
C) a monetary policy rule. 
D) interest rate targeting. 
A) activist monetary policy to stabilize the economy. 
B) activist fiscal policy coupled with a neutral monetary policy. 
C) a monetary policy rule. 
D) interest rate targeting.

Question 11

Which of the following is the consensus among most economists today with respect to the management of unemployment?

Accepted Answer

A) Government can't do anything about it. 
B) Expansionary policy can be used to achieve permanently low unemployment. 
C) Unemployment cannot be kept below the natural rate. 
D) Unemployment cannot be kept anywhere near the natural rate. 
A) Government can't do anything about it. 
B) Expansionary policy can be used to achieve permanently low unemployment. 
C) Unemployment cannot be kept below the natural rate. 
D) Unemployment cannot be kept anywhere near the natural rate.

Question 12

Which of the following is a point of the Great Moderation consensus?
I. Monetary policy should be the main stabilization policy.
II. The central bank should be independent of political influence.
III. Discretionary fiscal policy should be used sparingly.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III 
A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 13

The political business cycle refers to policies that:

Accepted Answer

A) slow down the economy in election years. 
B) keep the economy on a constant growth path. 
C) speed the economy up in election years. 
D) run surpluses in election years. 
A) slow down the economy in election years. 
B) keep the economy on a constant growth path. 
C) speed the economy up in election years. 
D) run surpluses in election years.

Question 14

Nearly all economists agree that decreases in money supply can _____ aggregate _____.

Accepted Answer

A) increase; supply 
B) decrease; supply 
C) decrease; demand 
D) increase; demand 
A) increase; supply 
B) decrease; supply 
C) decrease; demand 
D) increase; demand

Question 15

The General Theory of Employment, Interest, and Money is:

Accepted Answer

A) the first economics textbook of the 1980s. 
B) a defense of fiscal policy written by Milton Friedman. 
C) an analysis of the Great Depression. 
D) an explanation of globalization. 
A) the first economics textbook of the 1980s. 
B) a defense of fiscal policy written by Milton Friedman. 
C) an analysis of the Great Depression. 
D) an explanation of globalization.

Question 16

Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy.

Accepted Answer

A) True 
 B)False

Question 17

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Accepted Answer

A) True 
 B)False

Question 18

Keynes believed that "animal spirits," or confidence levels, had their greatest impact on:

Accepted Answer

A) investment spending. 
B) government spending. 
C) monetary policy officials. 
D) the foreign sector. 
A) investment spending. 
B) government spending. 
C) monetary policy officials. 
D) the foreign sector.

Question 19

During the 1940s, 1950s, and 1960s:

Accepted Answer

A) the role of the government in the economy increased. 
B) the role of the government in the economy decreased. 
C) Keynes's ideas were constantly challenged by free-market policies. 
D) Keynes's views were accepted only by left-wing socialist economists. 
A) the role of the government in the economy increased. 
B) the role of the government in the economy decreased. 
C) Keynes's ideas were constantly challenged by free-market policies. 
D) Keynes's views were accepted only by left-wing socialist economists.

Question 20

Which of the following does NOT explain why the official chronology of past U.S. business cycles maintained by the National Bureau of Economic Research goes back only to 1854?

Accepted Answer

A) The further back in time you go, the fewer economic data are available. 
B) There may not have been business cycles in the modern sense much before 1854. 
C) Before 1854 the U.S. economy was mostly agricultural, and therefore the short-run aggregate supply curve was probably close to vertical. 
D) There were no banks before 1854. 
A) The further back in time you go, the fewer economic data are available. 
B) There may not have been business cycles in the modern sense much before 1854. 
C) Before 1854 the U.S. economy was mostly agricultural, and therefore the short-run aggregate supply curve was probably close to vertical. 
D) There were no banks before 1854.

In a liquidity trap:

Keynesians believed that the economy could get out of the Great Depression if:

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

The recommendation that a decrease in taxes will alleviate a recessionary gap is consistent with _____ macroeconomics.

The Great Moderation consensus is the school of thought that monetary policy should be the main tool of stabilization policy and is skeptical about the use of fiscal policy.

According to Keynesian theory:

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Friedman favored:

Which of the following is the consensus among most economists today with respect to the management of unemployment?

Which of the following is a point of the Great Moderation consensus? I. Monetary policy should be the main stabilization policy. II. The central bank should be independent of political influence. III. Discretionary fiscal policy should be used sparingly.

The political business cycle refers to policies that:

Nearly all economists agree that decreases in money supply can _ aggregate _.

The General Theory of Employment, Interest, and Money is:

Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy.

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Keynes believed that "animal spirits," or confidence levels, had their greatest impact on:

During the 1940s, 1950s, and 1960s:

Which of the following does NOT explain why the official chronology of past U.S. business cycles maintained by the National Bureau of Economic Research goes back only to 1854?

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

In a liquidity trap:

Keynesians believed that the economy could get out of the Great Depression if:

Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?

The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.

The recommendation that a decrease in taxes will alleviate a recessionary gap is consistent with _____ macroeconomics.

The Great Moderation consensus is the school of thought that monetary policy should be the main tool of stabilization policy and is skeptical about the use of fiscal policy.

According to Keynesian theory:

According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

Friedman favored:

Which of the following is the consensus among most economists today with respect to the management of unemployment?

Which of the following is a point of the Great Moderation consensus? I. Monetary policy should be the main stabilization policy. II. The central bank should be independent of political influence. III. Discretionary fiscal policy should be used sparingly.

The political business cycle refers to policies that:

Nearly all economists agree that decreases in money supply can _____ aggregate _____.

The General Theory of Employment, Interest, and Money is:

Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy.

Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

Keynes believed that "animal spirits," or confidence levels, had their greatest impact on:

During the 1940s, 1950s, and 1960s:

Which of the following does NOT explain why the official chronology of past U.S. business cycles maintained by the National Bureau of Economic Research goes back only to 1854?

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

Nearly all economists agree that decreases in money supply can _ aggregate _.