Question 1

Which of the following was a proponent of supply-side economics?

Accepted Answer

A) Herbert Hoover 
B) Franklin Roosevelt 
C) Jimmy Carter 
D) Ronald Reagan 
A) Herbert Hoover 
B) Franklin Roosevelt 
C) Jimmy Carter 
D) Ronald Reagan

Question 2

A very low rate of inflation during a recession can lead to:

Accepted Answer

A) a liquidity trap, which makes monetary policy ineffective. 
B) a liquidity trap, which makes monetary policy effective. 
C) government budget deficits. 
D) government budget surpluses. 
A) a liquidity trap, which makes monetary policy ineffective. 
B) a liquidity trap, which makes monetary policy effective. 
C) government budget deficits. 
D) government budget surpluses.

Question 3

Which of the following schools of thought believe that expansionary monetary policy affects only prices, not output?
I. classical macroeconomics
II. Great Moderation consensus

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) I and II 
D) Neither I nor II

Question 4

Use the following to answer questions :
Figure: Classical Versus Keynesian Macroeconomics  
-(Figure: Classical Versus Keynesian Macroeconomics) Look at the figure Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD1 to AD2, perhaps because of a large decline in investment spending by businesses, the price level will _____ and real GDP will _____.

Accepted Answer

A) rise; fall 
B) not change; increase 
C) fall; not change 
D) fall; fall 
A) rise; fall 
B) not change; increase 
C) fall; not change 
D) fall; fall

Question 5

Economists who agree with the Great Moderation consensus believe that monetary policy can keep unemployment below the natural rate.

Accepted Answer

A) True 
 B)False

Question 6

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

Accepted Answer

A) once inflation gets embedded in people's expectations, unemployment and inflation will have a trade-off. 
B) the unemployment and inflation trade-off will not survive if inflation gets embedded in people's expectations. 
C) there will always be an unemployment and inflation trade-off. 
D) the unemployment and inflation trade-off is a myth. 
A) once inflation gets embedded in people's expectations, unemployment and inflation will have a trade-off. 
B) the unemployment and inflation trade-off will not survive if inflation gets embedded in people's expectations. 
C) there will always be an unemployment and inflation trade-off. 
D) the unemployment and inflation trade-off is a myth.

Question 7

The idea of sticky wages and prices is most closely associated with:

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 8

Which of the following was an argument in favor of using discretionary fiscal policy in fighting the Great Recession?

Accepted Answer

A) Monetary policy could not be effective, since interest rates were near zero. 
B) If taxes were increased, the budget could be balanced. 
C) If government spending decreased, the budget surplus would increase. 
D) The lags associated with monetary policy would be destabilizing. 
A) Monetary policy could not be effective, since interest rates were near zero. 
B) If taxes were increased, the budget could be balanced. 
C) If government spending decreased, the budget surplus would increase. 
D) The lags associated with monetary policy would be destabilizing.

Question 9

Rational expectations theory suggests that:

Accepted Answer

A) monetary policy that is expected will have the greatest impact on changing output levels. 
B) policies that are expected will have no effect on output or unemployment. 
C) economic agents take into account past actions only to make their current decisions. 
D) discretionary policies are best at bringing about changes in output. 
A) monetary policy that is expected will have the greatest impact on changing output levels. 
B) policies that are expected will have no effect on output or unemployment. 
C) economic agents take into account past actions only to make their current decisions. 
D) discretionary policies are best at bringing about changes in output.

Question 10

Use the following to answer questions:
Scenario: The Quantity Theory of Money
Suppose the money supply is equal to $10 billion and the velocity of money is 6.
-(Scenario: The Quantity Theory of Money) Look at the scenario The Quantity Theory of Money. If the aggregate price level is 4, then the real GDP is:

Accepted Answer

A) $60 billion. 
B) $30 billion. 
C) $20 billion. 
D) $15 billion. 
A) $60 billion. 
B) $30 billion. 
C) $20 billion. 
D) $15 billion.

Question 11

Use the following to answer questions :
Figure: Classical Versus Keynesian Macroeconomics  
-(Figure: Classical Versus Keynesian Macroeconomics) Look at the figure Classical Versus Keynesian Macroeconomics. According to the Keynesian view, if this economy shifts from AD2 to AD1, perhaps because of a large increase in government spending, the price level will _____ and real GDP will _____.

Accepted Answer

A) rise; fall 
B) not change; rise 
C) rise; not change 
D) rise; rise 
A) rise; fall 
B) not change; rise 
C) rise; not change 
D) rise; rise

Question 12

Classical economists believed that wages and prices were _____, and as a result, the aggregate _____ curve was vertical.

Accepted Answer

A) inflexible; supply 
B) inflexible; demand 
C) flexible; demand 
D) flexible; supply 
A) inflexible; supply 
B) inflexible; demand 
C) flexible; demand 
D) flexible; supply

Question 13

Keynesian economics stresses the role of:

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) the long run. 
D) both aggregate demand and the long run. 
A) aggregate demand. 
B) aggregate supply. 
C) the long run. 
D) both aggregate demand and the long run.

Question 14

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Accepted Answer

A) True 
 B)False

Question 15

Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.

Accepted Answer

A) True 
 B)False

Question 16

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

Accepted Answer

A) True 
 B)False

Question 17

Adam believes that in the long run all prices are flexible and that any increase in the money supply will lead only to inflation, not to an increase in aggregate output. Because the economy would self-correct to long-run equilibrium output, there is no role for either fiscal or monetary policy. Adam is best described as a:

Accepted Answer

A) supply-sider. 
B) Keynesian. 
C) classical economist. 
D) monetarist. 
A) supply-sider. 
B) Keynesian. 
C) classical economist. 
D) monetarist.

Question 18

According to classical economists, the aggregate supply curve is _____, but according to Keynes, it is _____.

Accepted Answer

A) vertical in the short run; upward sloping in the short run 
B) upward sloping in the short run; vertical in the short run 
C) upward sloping in the short run; horizontal in the short run 
D) downward sloping in the long run; always vertical 
A) vertical in the short run; upward sloping in the short run 
B) upward sloping in the short run; vertical in the short run 
C) upward sloping in the short run; horizontal in the short run 
D) downward sloping in the long run; always vertical

Question 19

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

Accepted Answer

A) True 
 B)False

Question 20

The Fed moved away from a monetary growth rule because _____ was (were) unstable.

Accepted Answer

A) the economy 
B) the money supply 
C) the velocity of money 
D) interest rates 
A) the economy 
B) the money supply 
C) the velocity of money 
D) interest rates

Which of the following was a proponent of supply-side economics?

A very low rate of inflation during a recession can lead to:

Which of the following schools of thought believe that expansionary monetary policy affects only prices, not output? I. classical macroeconomics II. Great Moderation consensus

Economists who agree with the Great Moderation consensus believe that monetary policy can keep unemployment below the natural rate.

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

The idea of sticky wages and prices is most closely associated with:

Which of the following was an argument in favor of using discretionary fiscal policy in fighting the Great Recession?

Rational expectations theory suggests that:

Classical economists believed that wages and prices were _, and as a result, the aggregate _ curve was vertical.

Keynesian economics stresses the role of:

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

According to classical economists, the aggregate supply curve is _, but according to Keynes, it is _.

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

The Fed moved away from a monetary growth rule because _____ was (were) unstable.

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

Which of the following was a proponent of supply-side economics?

A very low rate of inflation during a recession can lead to:

Which of the following schools of thought believe that expansionary monetary policy affects only prices, not output? I. classical macroeconomics II. Great Moderation consensus

Economists who agree with the Great Moderation consensus believe that monetary policy can keep unemployment below the natural rate.

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

The idea of sticky wages and prices is most closely associated with:

Which of the following was an argument in favor of using discretionary fiscal policy in fighting the Great Recession?

Rational expectations theory suggests that:

Classical economists believed that wages and prices were _____, and as a result, the aggregate _____ curve was vertical.

Keynesian economics stresses the role of:

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.

Most economists favor discretionary monetary policy because the velocity of money has been very stable since the 1980s.

According to classical economists, the aggregate supply curve is _____, but according to Keynes, it is _____.

The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.

The Fed moved away from a monetary growth rule because _____ was (were) unstable.

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

Classical economists believed that wages and prices were _, and as a result, the aggregate _ curve was vertical.

According to classical economists, the aggregate supply curve is _, but according to Keynes, it is _.