Question 1

Classical economists point out that:

Accepted Answer

A) there is a trade-off between unemployment and inflation. 
B) an increase in the money supply leads to a proportional rise in the price level. 
C) government spending can affect aggregate demand. 
D) there is a possibility of a liquidity trap. 
A) there is a trade-off between unemployment and inflation. 
B) an increase in the money supply leads to a proportional rise in the price level. 
C) government spending can affect aggregate demand. 
D) there is a possibility of a liquidity trap.

Question 2

The classical school of economics:

Accepted Answer

A) emphasizes the short run. 
B) emphasizes the flexibility of wages and prices. 
C) has a problem with potential output, since potential output cannot be achieved without active policy. 
D) advocates the use of discretionary fiscal policy. 
A) emphasizes the short run. 
B) emphasizes the flexibility of wages and prices. 
C) has a problem with potential output, since potential output cannot be achieved without active policy. 
D) advocates the use of discretionary fiscal policy.

Question 3

Use the following to answer questions :
Figure: Fiscal Policy with a Fixed Money Supply  
-(Figure: Fiscal Policy with a Fixed Money Supply) Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E2. Now government deficit spending is decreased, but the Federal Reserve expands the money supply. According to this model:

Accepted Answer

A) real GDP will decrease just as much as it would if the Federal Reserve had not expanded the money supply. 
B) real GDP will decrease, but not as much as it would if the Federal Reserve had failed to expand the money supply. 
C) real GDP will expand, but not as much as it would if the Federal Reserve had not expanded the money supply. 
D) interest rates will increase. 
A) real GDP will decrease just as much as it would if the Federal Reserve had not expanded the money supply. 
B) real GDP will decrease, but not as much as it would if the Federal Reserve had failed to expand the money supply. 
C) real GDP will expand, but not as much as it would if the Federal Reserve had not expanded the money supply. 
D) interest rates will increase.

Question 4

There may NOT have been business cycles in the United States before 1854 because:

Accepted Answer

A) the country was growing too rapidly to have a recession. 
B) the banking system established by Alexander Hamilton prevented business cycles. 
C) monetary policy conducted by the Fed was very successful. 
D) the economy was agricultural. 
A) the country was growing too rapidly to have a recession. 
B) the banking system established by Alexander Hamilton prevented business cycles. 
C) monetary policy conducted by the Fed was very successful. 
D) the economy was agricultural.

Question 5

Pablo believed that short-run changes in aggregate demand affected aggregate output as well as the price level. He believed that there was a role for monetary policy in managing the economy, but he advocated a simple monetary rule that would increase the money supply at a constant rate to grow the economy. Pablo was best described as a:

Accepted Answer

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

Question 6

Keynes believed that:

Accepted Answer

A) monetary policies had the greatest impact on the economy. 
B) long-run effects were most important and activist policies were most likely to be detrimental. 
C) business decisions could be understood if policy makers did not use activist policies. 
D) short-run effects were important and changes in aggregate demand could affect output and price levels. 
A) monetary policies had the greatest impact on the economy. 
B) long-run effects were most important and activist policies were most likely to be detrimental. 
C) business decisions could be understood if policy makers did not use activist policies. 
D) short-run effects were important and changes in aggregate demand could affect output and price levels.

Question 7

According to the real business cycle theory, fluctuations in output are caused by:

Accepted Answer

A) fluctuations in the growth rate of total factor productivity. 
B) changes in aggregate demand. 
C) changes in the money supply. 
D) discretionary fiscal policy. 
A) fluctuations in the growth rate of total factor productivity. 
B) changes in aggregate demand. 
C) changes in the money supply. 
D) discretionary fiscal policy.

Question 8

The main idea behind monetarism is that:

Accepted Answer

A) the aggregate output will be even greater than potential output if the money supply grows at a constant rate. 
B) the aggregate price level will increase proportionally if the money supply grows at a constant rate. 
C) the government budget will have a deficit if the government spending grows at a constant rate. 
D) the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate. 
A) the aggregate output will be even greater than potential output if the money supply grows at a constant rate. 
B) the aggregate price level will increase proportionally if the money supply grows at a constant rate. 
C) the government budget will have a deficit if the government spending grows at a constant rate. 
D) the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.

Question 9

Someone who believes in macroeconomic policy activism is likely to suggest that:

Accepted Answer

A) changes in the money supply or changes in fiscal policy will most likely destabilize the economy. 
B) balancing the government budget is more important than current economic problems. 
C) keeping the money supply growing at a constant rate would help the economy. 
D) changes in monetary or fiscal policy would smooth out the business cycle. 
A) changes in the money supply or changes in fiscal policy will most likely destabilize the economy. 
B) balancing the government budget is more important than current economic problems. 
C) keeping the money supply growing at a constant rate would help the economy. 
D) changes in monetary or fiscal policy would smooth out the business cycle.

Question 10

Classical economists believed all of the following EXCEPT that:

Accepted Answer

A) there could be temporary periods of unemployment. 
B) emphasis should be on the long run, and in the long run all would be set right because of the smooth functioning of the price system. 
C) the Great Depression would be a short-run aberration. 
D) monetary policy could tame the business cycle. 
A) there could be temporary periods of unemployment. 
B) emphasis should be on the long run, and in the long run all would be set right because of the smooth functioning of the price system. 
C) the Great Depression would be a short-run aberration. 
D) monetary policy could tame the business cycle.

Question 11

Keynesian economics emphasized the:

Accepted Answer

A) role of money. 
B) long run. 
C) impact of changes in aggregate demand. 
D) impact of changes in aggregate supply. 
A) role of money. 
B) long run. 
C) impact of changes in aggregate demand. 
D) impact of changes in aggregate supply.

Question 12

Monetarists argued that fiscal policy was ineffective if the money supply increased.

Accepted Answer

A) True 
 B)False

Question 13

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Accepted Answer

This Keynesian will likely recommend dis

Question 14

Use the following to answer questions :
Figure: Fiscal Policy with a Fixed Money Supply  
-(Figure: Fiscal Policy with a Fixed Money Supply) Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E1. Now government deficit spending is increased, but the Federal Reserve does NOT expand the money supply. According to this model:

Accepted Answer

A) real GDP will expand just as much as if the Federal Reserve had expanded the money supply. 
B) real GDP will decrease because the Federal Reserve did not expand the money supply. 
C) real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply. 
D) interest rates will decrease. 
A) real GDP will expand just as much as if the Federal Reserve had expanded the money supply. 
B) real GDP will decrease because the Federal Reserve did not expand the money supply. 
C) real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply. 
D) interest rates will decrease.

Question 15

Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Accepted Answer

A) aggregate demand 
B) the growth of factor productivity 
C) fiscal policy 
D) monetary policy 
A) aggregate demand 
B) the growth of factor productivity 
C) fiscal policy 
D) monetary policy

Question 16

Prior to the Great Depression, many policy makers:

Accepted Answer

A) believed activist policies were important to the well-being of an economy. 
B) focused on short-run economic problems. 
C) believed that long-run economic performance was the most important goal. 
D) believed economies always performed below their potential output level. 
A) believed activist policies were important to the well-being of an economy. 
B) focused on short-run economic problems. 
C) believed that long-run economic performance was the most important goal. 
D) believed economies always performed below their potential output level.

Question 17

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

Accepted Answer

A) Ronald Reagan. 
B) John Maynard Keynes. 
C) Adam Smith. 
D) Barack Obama. 
A) Ronald Reagan. 
B) John Maynard Keynes. 
C) Adam Smith. 
D) Barack Obama.

Question 18

The Friedman-Phelps hypothesis claimed that the apparent trade-off between unemployment and inflation would NOT survive an extended period of:

Accepted Answer

A) rising unemployment. 
B) rising prices. 
C) rising interest rates. 
D) increases in the money supply. 
A) rising unemployment. 
B) rising prices. 
C) rising interest rates. 
D) increases in the money supply.

Question 19

Many economists believe that:

Accepted Answer

A) fiscal policy can be used effectively to reduce unemployment below its natural rate. 
B) monetary policy can be used effectively to reduce unemployment below its natural rate. 
C) discretionary fiscal policy should be used sparingly because political influence may manipulate its implementation and use. 
D) monetary rules are best. 
A) fiscal policy can be used effectively to reduce unemployment below its natural rate. 
B) monetary policy can be used effectively to reduce unemployment below its natural rate. 
C) discretionary fiscal policy should be used sparingly because political influence may manipulate its implementation and use. 
D) monetary rules are best.

Question 20

Nancy believes that the best way to grow the economy is through tax cuts to increase the incentive to work and invest. Though these tax cuts might initially increase the budget deficit, Nancy is convinced that the economic growth that results will actually increase government tax revenue. Nancy is best described as a:

Accepted Answer

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

Classical economists point out that:

The classical school of economics:

There may NOT have been business cycles in the United States before 1854 because:

Keynes believed that:

According to the real business cycle theory, fluctuations in output are caused by:

The main idea behind monetarism is that:

Someone who believes in macroeconomic policy activism is likely to suggest that:

Classical economists believed all of the following EXCEPT that:

Keynesian economics emphasized the:

Monetarists argued that fiscal policy was ineffective if the money supply increased.

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Prior to the Great Depression, many policy makers:

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

The Friedman-Phelps hypothesis claimed that the apparent trade-off between unemployment and inflation would NOT survive an extended period of:

Many economists believe that:

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

Classical economists point out that:

The classical school of economics:

There may NOT have been business cycles in the United States before 1854 because:

Keynes believed that:

According to the real business cycle theory, fluctuations in output are caused by:

The main idea behind monetarism is that:

Someone who believes in macroeconomic policy activism is likely to suggest that:

Classical economists believed all of the following EXCEPT that:

Keynesian economics emphasized the:

Monetarists argued that fiscal policy was ineffective if the money supply increased.

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Prior to the Great Depression, many policy makers:

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

The Friedman-Phelps hypothesis claimed that the apparent trade-off between unemployment and inflation would NOT survive an extended period of:

Many economists believe that:

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