Question 1

If the Fed funds rate is only 1%, the economy is dangerously close to:

Accepted Answer

A) an inflationary spiral. 
B) a liquidity trap. 
C) very high unemployment. 
D) another recession. 
A) an inflationary spiral. 
B) a liquidity trap. 
C) very high unemployment. 
D) another recession.

Question 2

In the classical model, an increase in the money supply will result in:

Accepted Answer

A) inflation only, without affecting aggregate output. 
B) economic expansion, as aggregate output will increase. 
C) higher interest rates, lower investment, and ultimately lower aggregate output. 
D) recession only, without affecting the aggregate price level. 
A) inflation only, without affecting aggregate output. 
B) economic expansion, as aggregate output will increase. 
C) higher interest rates, lower investment, and ultimately lower aggregate output. 
D) recession only, without affecting the aggregate price level.

Question 3

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

Accepted Answer

A) prices. 
B) interest rates. 
C) the money supply. 
D) business investment. 
A) prices. 
B) interest rates. 
C) the money supply. 
D) business investment.

Question 4

In the 1970s and first half of the 1980s the U.S. economy had _____ inflation and _____ unemployment.

Accepted Answer

A) high; high 
B) high; low 
C) low; high 
D) low; low 
A) high; high 
B) high; low 
C) low; high 
D) low; low

Question 5

Monetary and fiscal policy can be used to reduce the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 6

According to monetarism:

Accepted Answer

A) Congress and the president should be responsible for controlling the money supply. 
B) output will grow steadily if the money supply grows at a steady rate. 
C) the Fed should vary the growth rate of the money supply on a monthly basis. 
D) changes in the money supply affect the real output only in the long run. 
A) Congress and the president should be responsible for controlling the money supply. 
B) output will grow steadily if the money supply grows at a steady rate. 
C) the Fed should vary the growth rate of the money supply on a monthly basis. 
D) changes in the money supply affect the real output only in the long run.

Question 7

The Great Moderation consensus includes the belief that expansionary monetary policy is effective in fighting recessions.

Accepted Answer

A) True 
 B)False

Question 8

For Keynes, changes in aggregate demand had their greatest impact:

Accepted Answer

A) on the aggregate price level. 
B) in the long run. 
C) on the aggregate output level. 
D) equally on the aggregate output level and the aggregate price level. 
A) on the aggregate price level. 
B) in the long run. 
C) on the aggregate output level. 
D) equally on the aggregate output level and the aggregate price level.

Question 9

After 1980 the velocity of money began to:

Accepted Answer

A) stabilize. 
B) drift upward. 
C) drift downward. 
D) shift erratically. 
A) stabilize. 
B) drift upward. 
C) drift downward. 
D) shift erratically.

Question 10

According to the Great Moderation consensus:
I. fiscal policy should be the main stabilization tool.
II. the effectiveness of economic policy is limited by the political business cycle.

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 11

From 1979 to 1982, the Federal Reserve System:

Accepted Answer

A) followed monetarist policy suggestions. 
B) initiated a sharply expansionary monetary policy. 
C) pursued a policy that shifted AD to the right. 
D) fell into the liquidity trap. 
A) followed monetarist policy suggestions. 
B) initiated a sharply expansionary monetary policy. 
C) pursued a policy that shifted AD to the right. 
D) fell into the liquidity trap.

Question 12

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 AD1 to AD2 because of a large decline in investment spending by businesses, the price level will _____, but real GDP will _____.

Accepted Answer

A) increase; decrease 
B) not change; increase 
C) increase; not change 
D) decrease; decrease 
A) increase; decrease 
B) not change; increase 
C) increase; not change 
D) decrease; decrease

Question 13

Which of the following group of economists DISAGREES with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

Accepted Answer

A) Keynesians 
B) monetarists 
C) supply-side economists 
D) classical economists 
A) Keynesians 
B) monetarists 
C) supply-side economists 
D) classical economists

Question 14

Prior to 1854, the United States was:

Accepted Answer

A) dominated by the manufacturing sector and was subject to price inflexibility. 
B) dominated by the agricultural sector and was subject to price flexibility. 
C) plagued by recurrent recessions due to poor government policy. 
D) plagued by recurrent inflations due to poor central bank policy. 
A) dominated by the manufacturing sector and was subject to price inflexibility. 
B) dominated by the agricultural sector and was subject to price flexibility. 
C) plagued by recurrent recessions due to poor government policy. 
D) plagued by recurrent inflations due to poor central bank policy.

Question 15

Which of the following statements do economists broadly consider to be TRUE?

Accepted Answer

A) A monetary rule can increase real GDP. 
B) Discretionary fiscal policy is typically more effective than monetary policy in fighting recessions. 
C) A nation's central bank should be managed by elected officials. 
D) Discretionary monetary and fiscal policy cannot affect the long-run level of unemployment. 
A) A monetary rule can increase real GDP. 
B) Discretionary fiscal policy is typically more effective than monetary policy in fighting recessions. 
C) A nation's central bank should be managed by elected officials. 
D) Discretionary monetary and fiscal policy cannot affect the long-run level of unemployment.

Question 16

To close an inflationary gap, the Great Moderation consensus on macroeconomics suggests that:

Accepted Answer

A) a close coordination of fiscal and monetary policy is crucial. 
B) the automatic fiscal stabilizers are powerful enough to bring the economy back to equilibrium. 
C) policy makers should wait until a negative productivity shock brings the economy back to equilibrium. 
D) monetary policy should take the leading role in economic stabilization. 
A) a close coordination of fiscal and monetary policy is crucial. 
B) the automatic fiscal stabilizers are powerful enough to bring the economy back to equilibrium. 
C) policy makers should wait until a negative productivity shock brings the economy back to equilibrium. 
D) monetary policy should take the leading role in economic stabilization.

Question 17

One argument in favor of quantitative easing is that:

Accepted Answer

A) long-term interest rates have more influence over private spending than short-term interest rates. 
B) short-term interest rates have more influence over private spending than long-term rates. 
C) the private sector, not the Federal Reserve, should determine interest rates. 
D) it decreases the budget deficit. 
A) long-term interest rates have more influence over private spending than short-term interest rates. 
B) short-term interest rates have more influence over private spending than long-term rates. 
C) the private sector, not the Federal Reserve, should determine interest rates. 
D) it decreases the budget deficit.

Question 18

Which of the following was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

Accepted Answer

A) Monetary policy would not be effective because interest rates were so high. 
B) Crowding-out was not likely to be a problem in a very depressed economy with interest rates near zero. 
C) The economy was so depressed that a political business cycle was not likely to be a problem. 
D) Ricardian equivalence was likely if monetary policy was used alone. 
A) Monetary policy would not be effective because interest rates were so high. 
B) Crowding-out was not likely to be a problem in a very depressed economy with interest rates near zero. 
C) The economy was so depressed that a political business cycle was not likely to be a problem. 
D) Ricardian equivalence was likely if monetary policy was used alone.

Question 19

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

Accepted Answer

A) unemployment can be constantly decreased as long as expectations of inflation are kept low. 
B) the natural rate of unemployment limits what monetary and fiscal policy can accomplish. 
C) the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was a mistake. 
D) the only effective policy is to maintain a constant growth rate of the money supply. 
A) unemployment can be constantly decreased as long as expectations of inflation are kept low. 
B) the natural rate of unemployment limits what monetary and fiscal policy can accomplish. 
C) the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was a mistake. 
D) the only effective policy is to maintain a constant growth rate of the money supply.

Question 20

The historical validation of Keynes's theory came through the:

Accepted Answer

A) expansion in aggregate demand resulting from drastic interest rate cuts in the early 1940s. 
B) successful application of his theories in the United States during the Great Depression in the early 1930s. 
C) expansion in aggregate demand resulting from massive military spending in the early 1940s. 
D) successful application of his theories in the United Kingdom during the mid 1930s. 
A) expansion in aggregate demand resulting from drastic interest rate cuts in the early 1940s. 
B) successful application of his theories in the United States during the Great Depression in the early 1930s. 
C) expansion in aggregate demand resulting from massive military spending in the early 1940s. 
D) successful application of his theories in the United Kingdom during the mid 1930s.

If the Fed funds rate is only 1%, the economy is dangerously close to:

In the classical model, an increase in the money supply will result in:

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

In the 1970s and first half of the 1980s the U.S. economy had _ inflation and _ unemployment.

Monetary and fiscal policy can be used to reduce the natural rate of unemployment.

According to monetarism:

The Great Moderation consensus includes the belief that expansionary monetary policy is effective in fighting recessions.

For Keynes, changes in aggregate demand had their greatest impact:

After 1980 the velocity of money began to:

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool. II. the effectiveness of economic policy is limited by the political business cycle.

From 1979 to 1982, the Federal Reserve System:

Which of the following group of economists DISAGREES with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

Prior to 1854, the United States was:

Which of the following statements do economists broadly consider to be TRUE?

To close an inflationary gap, the Great Moderation consensus on macroeconomics suggests that:

One argument in favor of quantitative easing is that:

Which of the following was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

The historical validation of Keynes's theory came through the:

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

If the Fed funds rate is only 1%, the economy is dangerously close to:

In the classical model, an increase in the money supply will result in:

Friedman and Schwartz's work A Monetary History of the United States, 1867-1960 showed that the business cycle historically was associated with fluctuations in:

In the 1970s and first half of the 1980s the U.S. economy had _____ inflation and _____ unemployment.

Monetary and fiscal policy can be used to reduce the natural rate of unemployment.

According to monetarism:

The Great Moderation consensus includes the belief that expansionary monetary policy is effective in fighting recessions.

For Keynes, changes in aggregate demand had their greatest impact:

After 1980 the velocity of money began to:

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool. II. the effectiveness of economic policy is limited by the political business cycle.

From 1979 to 1982, the Federal Reserve System:

Which of the following group of economists DISAGREES with discretionary monetary policy in favor of a monetary rule that prescribes a slow increase in the money supply?

Prior to 1854, the United States was:

Which of the following statements do economists broadly consider to be TRUE?

To close an inflationary gap, the Great Moderation consensus on macroeconomics suggests that:

One argument in favor of quantitative easing is that:

Which of the following was a justification for breaking with the normal presumption against using discretionary fiscal policy during the Great Recession?

The Great Moderation consensus regarding the use of monetary or fiscal policy to reduce unemployment in the long run is that:

The historical validation of Keynes's theory came through the:

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

In the 1970s and first half of the 1980s the U.S. economy had _ inflation and _ unemployment.