Question 1

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.E) B) and D)
F) B) and C)

Question 2

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 3

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.E) A) and C)
F) None of the above

Question 4

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.E) B) and D)
F) C) and D)

Question 5

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.E) A) and C)
F) None of the above

Question 6

_____ 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)  MonetarismE) A) and B)
F) All of the above

Question 7

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; decreasesE) C) and D)
F) B) and C)

Question 8

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.E) A) and D)
F) None of the above

Question 9

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.E) A) and B)
F) B) and C)

Question 10

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.E) B) and D)
F) A) and D)

Question 11

Use the following to answer questions :
Figure: Classical Versus Keynesian Macroeconomics 2 to AD1, perhaps because of a large increase in government spending, the price level will _____ and real GDP will _____. A) rise; fall B) rise; not change C) not change; rise D) fall; fall" class="answers-bank-image d-inline" rel="preload" >
-(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; fallE) None of the above
F) A) and D)

Question 12

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.E) A) and D)
F) B) and D)

Question 13

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.E) None of the above
F) B) and C)

Question 14

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.E) None of the above
F) A) and D)

Question 15

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.E) B) and C)
F) C) and D)

Question 16

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.E) A) and B)
F) None of the above

Question 17

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 18

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.E) All of the above
F) B) and C)

Question 19

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 20

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.E) None of the above
F) B) and D)

Exam 18: Events and Ideas

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.

Correct Answer
verified

The consensus is that the Great Depression was ended by:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified
A Keynesian will recommend direct expans...
View Answer

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

Correct Answer
verified

New classical macroeconomists believe that the short-run aggregate:

Correct Answer
verified

The Great Moderation consensus is that:

Correct Answer
verified

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:

Correct Answer
verified

The start of an expansion is determined by the:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The money velocity equation is stated as:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

According to supply-side economics, tax cuts:

Correct Answer
verified

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

Correct Answer
verified

Macroeconomic policy activism:

Correct Answer
verified

Most economists today believe that:

Correct Answer
verified

Exam 18: Events and Ideas

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.

Correct AnswerverifiedShow Answer

The consensus is that the Great Depression was ended by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedA Keynesian will recommend direct expans...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

New classical macroeconomists believe that the short-run aggregate:

Correct AnswerverifiedShow Answer

The Great Moderation consensus is that:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

The start of an expansion is determined by the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The money velocity equation is stated as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to supply-side economics, tax cuts:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Macroeconomic policy activism:

Correct AnswerverifiedShow Answer

Most economists today believe that:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
A Keynesian will recommend direct expans...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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