Exam 17: Macroeconomics: Events and Ideas

Use the following to answer questions: -(Figure: Fiscal Policy with a Fixed Money Supply)Refer to 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:

Those who believe in the classical model suggest that expansionary policies would result in increases in:

Prior to the 1930s,the _____ model dominated thinking about how the economy worked.

The main idea behind monetarism is that:

Monetarists argue that discretionary monetary policy does more harm than good.

According to a Keynesian economist,a recessionary gap should be fixed with:

Real business cycle theory contends that the:

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:

According to the real business cycle theory,the primary source of fluctuations in real output is changes in the:

Many economists argued against using discretionary fiscal policy during the Great Recession because interest rates were very low and fiscal policy is ineffective when interest rates are near zero.

Unlike the majority of countries in the world,______experienced interest rates close to zero since the 1990s.

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

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

The school of thought that monetary policy should be the main tool of stabilization policy,that is skeptical about the use of fiscal policy,and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Milton Friedman's argument was that the central bank should follow a monetary policy rule so that the money supply would:

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:

The theory of rational expectations contends that policy activism is:

According to the Great Moderation consensus,fiscal policy should be the main stabilization tool.

Keynesian economics emphasized that economic downturns could be due to: