Question 1

Macroeconomic policy activism:

Accepted Answer

A) is the use of political activism made popular by liberal economists. 
B) mandates a balanced government budget. 
C) is the use of monetary and fiscal policy to smooth out the business cycle. 
D) was the tool used by classical economists. 
A) is the use of political activism made popular by liberal economists. 
B) mandates a balanced government budget. 
C) is the use of monetary and fiscal policy to smooth out the business cycle. 
D) was the tool used by classical economists.

Question 2

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

Accepted Answer

A) quantitative easing. 
B) fiscal stimulus. 
C) expansionary austerity. 
D) a credit crunch. 
A) quantitative easing. 
B) fiscal stimulus. 
C) expansionary austerity. 
D) a credit crunch.

Question 3

According to supply-side economics, tax cuts:

Accepted Answer

A) cause dangerous budget deficits. 
B) unfairly sacrifice equity to efficiency. 
C) increase incentives to work and save and cause increases in potential output. 
D) increase output by directly increasing aggregate demand. 
A) cause dangerous budget deficits. 
B) unfairly sacrifice equity to efficiency. 
C) increase incentives to work and save and cause increases in potential output. 
D) increase output by directly increasing aggregate demand.

Question 4

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____ and the price level rises, while aggregate output_____.

Accepted Answer

A) right; increases 
B) left; remains constant 
C) right; decreases 
D) left; decreases 
A) right; increases 
B) left; remains constant 
C) right; decreases 
D) left; decreases

Question 5

The economy is in a recession. The head economist at the central bank is concerned about the growing possibility of a liquidity trap. The head of the President's Council of Economic Advisers is an ardent Keynesian. What will this Keynesian economist recommend or not recommend? Explain.

Accepted Answer

A Keynesian will recommend direct expans

Question 6

The purpose of quantitative easing is to drive down long-term interest rates, which are usually more important for private investment spending than short-term rates.

Accepted Answer

A) True 
 B)False

Question 7

Most economists today believe that:

Accepted Answer

A) the Federal Reserve should be abolished. 
B) fiscal policy can decrease the unemployment rate below the natural rate of unemployment. 
C) the federal government should always balance its budget. 
D) the federal government should not seek to balance the budget annually, but let it function as an automatic stabilizer. 
A) the Federal Reserve should be abolished. 
B) fiscal policy can decrease the unemployment rate below the natural rate of unemployment. 
C) the federal government should always balance its budget. 
D) the federal government should not seek to balance the budget annually, but let it function as an automatic stabilizer.

Question 8

_____ is the MOST likely to advocate the use of fiscal policy in fighting recessions?

Accepted Answer

A) Classical macroeconomics 
B) Keynesian economics 
C) Rational expectations theory 
D) Monetarism 
A) Classical macroeconomics 
B) Keynesian economics 
C) Rational expectations theory 
D) Monetarism

Question 9

According to the classical model of the price level, the short-run aggregate supply curve is:

Accepted Answer

A) flat. 
B) negatively sloped. 
C) vertical. 
D) unstable. 
A) flat. 
B) negatively sloped. 
C) vertical. 
D) unstable.

Question 10

The Great Moderation consensus is that:

Accepted Answer

A) fiscal policy should play the main role in stabilization policy. 
B) monetary policy should play the main role in stabilization policy. 
C) automatic stabilizers should be the only type of policy used. 
D) government budgets should always be balanced. 
A) fiscal policy should play the main role in stabilization policy. 
B) monetary policy should play the main role in stabilization policy. 
C) automatic stabilizers should be the only type of policy used. 
D) government budgets should always be balanced.

Question 11

The money velocity equation is stated as:

Accepted Answer

A) M × V = P × Y. 
B) M × P = V × Y. 
C) M × Y = V × P. 
D) M × Y × P = V. 
A) M × V = P × Y. 
B) M × P = V × Y. 
C) M × Y = V × P. 
D) M × Y × P = V.

Question 12

Keynes argued that the surest way to bring the economy out of the Great Depression was to:

Accepted Answer

A) keep the economy in a liquidity trap until antitrust policy could be enforced. 
B) use expansionary fiscal policy. 
C) increase taxes and spend less. 
D) leave the economy alone, and flexible wages and prices would eventually lead to increases in income and employment. 
A) keep the economy in a liquidity trap until antitrust policy could be enforced. 
B) use expansionary fiscal policy. 
C) increase taxes and spend less. 
D) leave the economy alone, and flexible wages and prices would eventually lead to increases in income and employment.

Question 13

According to Keynes, the remedy for a recessionary gap was straightforward. The solution was to:

Accepted Answer

A) increase aggregate supply. 
B) increase aggregate demand. 
C) control big business. 
D) decrease government involvement. 
A) increase aggregate supply. 
B) increase aggregate demand. 
C) control big business. 
D) decrease government involvement.

Question 14

The concept of the monetary policy rule is based on the assumption that:

Accepted Answer

A) discretionary fiscal policy crowds out investment spending. 
B) the natural rate of unemployment is constant in the long run. 
C) monetary policy lags are shorter than fiscal policy lags. 
D) the velocity of money is constant in the short run. 
A) discretionary fiscal policy crowds out investment spending. 
B) the natural rate of unemployment is constant in the long run. 
C) monetary policy lags are shorter than fiscal policy lags. 
D) the velocity of money is constant in the short run.

Question 15

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

Question 16

Most economists believe that the budget should not be balanced annually but should be allowed to function as an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 17

The Great Moderation consensus about macroeconomic policy is that monetary policy:

Accepted Answer

A) is effective. 
B) can reduce the unemployment rate below the natural rate. 
C) makes the economy unstable. 
D) should follow a policy rule. 
A) is effective. 
B) can reduce the unemployment rate below the natural rate. 
C) makes the economy unstable. 
D) should follow a policy rule.

Question 18

The consensus is that the Great Depression was ended by:

Accepted Answer

A) imposing fiscal discipline and reducing budget deficits. 
B) following Keynes's analysis regarding the "animal spirits." 
C) increasing the money supply and lowering the interest rate. 
D) applying expansionary fiscal policy on a large scale. 
A) imposing fiscal discipline and reducing budget deficits. 
B) following Keynes's analysis regarding the "animal spirits." 
C) increasing the money supply and lowering the interest rate. 
D) applying expansionary fiscal policy on a large scale.

Question 19

The start of an expansion is determined by the:

Accepted Answer

A) Treasury Department. 
B) Federal Reserve. 
C) president. 
D) National Bureau of Economic Research. 
A) Treasury Department. 
B) Federal Reserve. 
C) president. 
D) National Bureau of Economic Research.

Question 20

New classical macroeconomists believe that the short-run aggregate:

Accepted Answer

A) supply curve is vertical. 
B) demand curve is vertical. 
C) demand curve has a positive slope. 
D) supply curve is horizontal. 
A) supply curve is vertical. 
B) demand curve is vertical. 
C) demand curve has a positive slope. 
D) supply curve is horizontal.

Macroeconomic policy activism:

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

According to supply-side economics, tax cuts:

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _ and the price level rises, while aggregate output_.

The economy is in a recession. The head economist at the central bank is concerned about the growing possibility of a liquidity trap. The head of the President's Council of Economic Advisers is an ardent Keynesian. What will this Keynesian economist recommend or not recommend? Explain.

The purpose of quantitative easing is to drive down long-term interest rates, which are usually more important for private investment spending than short-term rates.

Most economists today believe that:

_____ is the MOST likely to advocate the use of fiscal policy in fighting recessions?

According to the classical model of the price level, the short-run aggregate supply curve is:

The Great Moderation consensus is that:

The money velocity equation is stated as:

Keynes argued that the surest way to bring the economy out of the Great Depression was to:

According to Keynes, the remedy for a recessionary gap was straightforward. The solution was to:

The concept of the monetary policy rule is based on the assumption that:

Most economists believe that the budget should not be balanced annually but should be allowed to function as an automatic stabilizer.

The Great Moderation consensus about macroeconomic policy is that monetary policy:

The consensus is that the Great Depression was ended by:

The start of an expansion is determined by the:

New classical macroeconomists believe that the short-run aggregate:

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

Macroeconomic policy activism:

The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:

According to supply-side economics, tax cuts:

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____ and the price level rises, while aggregate output_____.

The economy is in a recession. The head economist at the central bank is concerned about the growing possibility of a liquidity trap. The head of the President's Council of Economic Advisers is an ardent Keynesian. What will this Keynesian economist recommend or not recommend? Explain.

The purpose of quantitative easing is to drive down long-term interest rates, which are usually more important for private investment spending than short-term rates.

Most economists today believe that:

_____ is the MOST likely to advocate the use of fiscal policy in fighting recessions?

According to the classical model of the price level, the short-run aggregate supply curve is:

The Great Moderation consensus is that:

The money velocity equation is stated as:

Keynes argued that the surest way to bring the economy out of the Great Depression was to:

According to Keynes, the remedy for a recessionary gap was straightforward. The solution was to:

The concept of the monetary policy rule is based on the assumption that:

Most economists believe that the budget should not be balanced annually but should be allowed to function as an automatic stabilizer.

The Great Moderation consensus about macroeconomic policy is that monetary policy:

The consensus is that the Great Depression was ended by:

The start of an expansion is determined by the:

New classical macroeconomists believe that the short-run aggregate:

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

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _ and the price level rises, while aggregate output_.