Question 1

Which of the following believes that fiscal policy should have the central role in fighting recessions?
I. classical macroeconomics
II. Keynesian macroeconomics
III. monetarism

Accepted Answer

A)  I only
B)  II only
C)  III only
D)  I, II, and IIIE) All of the above
F) A) and C)

Question 2

Why did the adoption of Keynesian economics come out of the Great Depression?

Accepted Answer

Prior to the Great Depression, the class...

Question 3

Use the following to answer questions:
Scenario: The Quantity Theory of Money
Suppose the money supply is equal to $10 billion and the velocity of money is 6.
-(Scenario: The Quantity Theory of Money)  Look at the scenario The Quantity Theory of Money. If the aggregate price level is 4, then the nominal GDP is:

Accepted Answer

A)  $15 billion.
B)  $60 billion.
C)  $20 billion.
D)  $10 billion.E) A) and B)
F) B) and D)

Question 4

A policy of fiscal stimulus involves _____ taxes and _____ government spending.

Accepted Answer

A)  increasing; decreasing
B)  increasing; increasing
C)  decreasing; decreasing
D)  decreasing; increasingE) B) and C)
F) None of the above

Question 5

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

Accepted Answer

A)  Keynesian
B)  classical
C)  monetarist
D)  real business cycleE) B) and D)
F) None of the above

Question 6

Discretionary fiscal policy:

Accepted Answer

A)  is not subject to lags and therefore is effective at controlling business cycles.
B)  refers to changes in the money supply used to smooth out the economy's ups and downs.
C)  is favored by monetarists.
D)  is favored by Keynesians.E) A) and B)
F) A) and C)

Question 7

The theory of rational expectations is CONSISTENT with which of the following statements?

Accepted Answer

A)  It takes into account only current information about inflation.
B)  It takes into account only past information about inflation.
C)  It takes into account past rates of inflation and available information about monetary and fiscal policy.
D)  A government attempt to trade off higher inflation for lower unemployment would work in the short run but would eventually fail because higher inflation would get built into expectations.E) A) and D)
F) None of the above

Question 8

Which of the following statements is TRUE of the state of modern macroeconomics?

Accepted Answer

A)  There is much more consensus than disagreement among economists.
B)  Inflation targeting and asset price management are incompatible duties for a central bank.
C)  Congress indirectly controls the Fed and monetary policy through its annual budget allocations.
D)  The Great Recession heightened the areas of disagreement among macroeconomists over key policy questions.E) B) and D)
F) None of the above

Question 9

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

Accepted Answer

A)  increases in output and the aggregate price level.
B)  increases in output with no change in the aggregate price level.
C)  increases in the aggregate price level with no change in output.
D)  increases in unemployment and the output level.E) C) and D)
F) A) and D)

Question 10

Some Keynesian economists believed that at the cost of some inflation, the government could reduce the unemployment rate to a permanently low rate.

Accepted Answer

A) True 
 B)False

Question 11

The natural rate hypothesis:

Accepted Answer

A)  is now generally discredited.
B)  implies sharp limits on what macroeconomic policy can achieve.
C)  implies there is a long-run trade-off between inflation and unemployment.
D)  implies that there is no liquidity trap.E) B) and D)
F) All of the above

Question 12

Milton Friedman was a leader and major proponent of:

Accepted Answer

A)  monetarism.
B)  classical economics.
C)  Keynesian economics.
D)  rational expectations theory.E) B) and D)
F) A) and C)

Question 13

Which of the following theories is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

Accepted Answer

A)  Keynesian theory
B)  new classical economics
C)  new Keynesian theory
D)  real business cycle theoryE) B) and D)
F) None of the above

Question 14

The main reason that the Great Depression ended was:

Accepted Answer

A)  effective monetary policy by the Fed under the leadership of Paul Volcker.
B)  the defeat of Adolf Hitler in Germany in the 1930s.
C)  Winston Churchill's foreign policy.
D)  deficit spending in the United States to finance World War II.E) None of the above
F) B) and C)

Question 15

Keynesian theory argued that monetary policy could be very effective during a depression.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is broadly agreed upon by modern macroeconomists?

Accepted Answer

A)  Monetary and fiscal policy can both be effective at decreasing unemployment in the short run but not in the long run.
B)  Discretionary fiscal policy is typically an effective remedy for a recessionary gap except in special circumstances.
C)  The central bank should set a specific target rate of inflation.
D)  A monetary rule should be set by the central bank.E) A) and B)
F) B) and C)

Question 17

Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.

Accepted Answer

The rational expectations theory says th...

Question 18

During the Great Recession policy makers were not as worried as usual about the lags associated with discretionary fiscal policy because:

Accepted Answer

A)  the severity of the recession led Congress to pledge to pass a bipartisan spending package immediately.
B)  businesses had pledged to respond quickly to the lower interest rates.
C)  the economy was likely to depressed for a long time, so the lags were not likely to be as destabilizing as usual.
D)  the financial sector of the economy was not affected by the recession and was ready to make loans to consumers and businesses.E) A) and C)
F) None of the above

Question 19

Which of the following schools of thought believe that expansionary monetary policy is effective in fighting recessions?
I. classical macroeconomics
II. Great Moderation consensus

Accepted Answer

A)  I only
B)  II only
C)  I and II
D)  neither I nor IIE) All of the above
F) None of the above

Question 20

The recommendation to use monetary policy to stabilize the economy and use fiscal policy only when monetary policy is ineffective is consistent with _____ macroeconomics.

Accepted Answer

A)  classical
B)  Keynesian
C)  monetarist
D)  Great Moderation consensusE) A) and B)
F) None of the above

Exam 18: Events and Ideas

Some Keynesian economists believed that at the cost of some inflation, the government could reduce the unemployment rate to a permanently low rate.

Correct Answer
verified

Which of the following theories is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

Correct Answer
verified

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

Correct Answer
verified

Keynesian theory argued that monetary policy could be very effective during a depression.

Correct Answer
verified

Why did the adoption of Keynesian economics come out of the Great Depression?

Correct Answer
verified
Prior to the Great Depression, the class...
View Answer

Milton Friedman was a leader and major proponent of:

Correct Answer
verified

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

Correct Answer
verified

Which of the following schools of thought believe that expansionary monetary policy is effective in fighting recessions? I. classical macroeconomics II. Great Moderation consensus

Correct Answer
verified

Which of the following statements is broadly agreed upon by modern macroeconomists?

Correct Answer
verified

During the Great Recession policy makers were not as worried as usual about the lags associated with discretionary fiscal policy because:

Correct Answer
verified

The theory of rational expectations is CONSISTENT with which of the following statements?

Correct Answer
verified

Which of the following statements is TRUE of the state of modern macroeconomics?

Correct Answer
verified

Which of the following believes that fiscal policy should have the central role in fighting recessions? I. classical macroeconomics II. Keynesian macroeconomics III. monetarism

Correct Answer
verified

A policy of fiscal stimulus involves _ taxes and _ government spending.

Correct Answer
verified

The main reason that the Great Depression ended was:

Correct Answer
verified

Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.

Correct Answer
verified
The rational expectations theory says th...
View Answer

The natural rate hypothesis:

Correct Answer
verified

Correct Answer
verified

Discretionary fiscal policy:

Correct Answer
verified

The recommendation to use monetary policy to stabilize the economy and use fiscal policy only when monetary policy is ineffective is consistent with _____ macroeconomics.

Correct Answer
verified

Exam 18: Events and Ideas

Some Keynesian economists believed that at the cost of some inflation, the government could reduce the unemployment rate to a permanently low rate.

Correct AnswerverifiedShow Answer

Which of the following theories is consistent with the notion that the short-run aggregate supply curve may be vertical after all?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Keynesian theory argued that monetary policy could be very effective during a depression.

Correct AnswerverifiedShow Answer

Why did the adoption of Keynesian economics come out of the Great Depression?

Correct AnswerverifiedPrior to the Great Depression, the class...View AnswerShow Answer

Milton Friedman was a leader and major proponent of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following schools of thought believe that expansionary monetary policy is effective in fighting recessions? I. classical macroeconomics II. Great Moderation consensus

Correct AnswerverifiedShow Answer

Which of the following statements is broadly agreed upon by modern macroeconomists?

Correct AnswerverifiedShow Answer

During the Great Recession policy makers were not as worried as usual about the lags associated with discretionary fiscal policy because:

Correct AnswerverifiedShow Answer

The theory of rational expectations is CONSISTENT with which of the following statements?

Correct AnswerverifiedShow Answer

Which of the following statements is TRUE of the state of modern macroeconomics?

Correct AnswerverifiedShow Answer

Which of the following believes that fiscal policy should have the central role in fighting recessions? I. classical macroeconomics II. Keynesian macroeconomics III. monetarism

Correct AnswerverifiedShow Answer

A policy of fiscal stimulus involves _____ taxes and _____ government spending.

Correct AnswerverifiedShow Answer

The main reason that the Great Depression ended was:

Correct AnswerverifiedShow Answer

Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.

Correct AnswerverifiedThe rational expectations theory says th...View AnswerShow Answer

The natural rate hypothesis:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discretionary fiscal policy:

Correct AnswerverifiedShow Answer

The recommendation to use monetary policy to stabilize the economy and use fiscal policy only when monetary policy is ineffective is consistent with _____ macroeconomics.

Correct AnswerverifiedShow Answer

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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Prior to the Great Depression, the class...
View Answer

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
verified

A policy of fiscal stimulus involves _ taxes and _ government spending.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The rational expectations theory says th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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