Question 1

Which of the following BEST explains why the Fed flirted with monetarism but then gave up?

Accepted Answer

A)   The natural rate hypothesis failed to predict a worsening of the trade-off between inflation and unemployment.
B)   A sharp rise in inflation during the 1970s broke the perceived trade-off between inflation and unemployment and discredited traditional Keynesianism.
C)   Inflation started dropping off sharply in the 1980s, and this helped bolster the view that targeting the money supply no longer made sense.
D)   It finally became evident that there was no longer a trade-off between inflation and unemployment.E) A) and B)
F) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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) A) and C)
F) All of the above

Question 4

Rational expectations theory suggests that:

Accepted Answer

A)   monetary policy that is expected will have the greatest impact on changing output levels.
B)   policies that are expected will have no effect on output or unemployment.
C)   economic agents take into account past actions only to make their current decisions.
D)   discretionary policies are best at bringing about changes in output.E) None of the above
F) B) and D)

Question 5

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the aggregate demand curve would cause a(n) :

Accepted Answer

A)   decrease in the level of income.
B)   increase in the unemployment level.
C)   change in the long-run aggregate supply curve.
D)   increase in employment, production, and income.E) B) and C)
F) A) and D)

Question 6

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) A) and B)
F) B) and D)

Question 7

Classical economics is based primarily on the works of John Maynard Keynes.

Accepted Answer

A) True 
 B)False

Question 8

The General Theory of Employment, Interest, and Money was written by:

Accepted Answer

A)   Adam Smith.
B)   Paul Samuelson.
C)   Joseph Schumpeter.
D)   John Maynard Keynes.E) A) and D)
F) A) and B)

Question 9

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

Question 10

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 B)
F) None of the above

Question 11

When the Fed pursues a policy of quantitative easing, it:

Accepted Answer

A)   is trying to increase interest rates.
B)   is trying to decrease inflation.
C)   purchases short-term government securities.
D)   purchases long-term debt whose interest rates are significantly above zero.E) B) and D)
F) None of the above

Question 12

Use the following to answer questions 
Figure: Fiscal Policy and the End of the Great Depression 
-(Figure: Fiscal Policy and the End of the Great Depression)  Look at the figure Fiscal Policy and the End of the Great Depression. The period from 1939 through 1943 would seem to indicate that in the short run a large increase in government deficit spending can _____ the unemployment rate.

Accepted Answer

A)   reduce
B)   increase
C)   not affect
D)   reduce or increaseE) None of the above
F) A) and B)

Question 13

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

Question 14

Which of the following does NOT represent the broad consensus among macroeconomists?

Accepted Answer

A)   Monetary policy should play the main role in stabilization policy.
B)   The central bank should be independent, insulated from political pressures, to avoid a political business cycle.
C)   Discretionary fiscal policy should be used sparingly because of policy lags and the risks of the political business cycle.
D)   Discretionary fiscal policy can lower the natural rate of unemployment.E) None of the above
F) A) and D)

Question 15

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 16

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

Question 17

Keynes suggested that money is:

Accepted Answer

A)   the most important factor affecting aggregate supply.
B)   the most important factor affecting aggregate demand.
C)   only one of a variety of factors affecting aggregate supply.
D)   only one of a variety of factors affecting aggregate demand.E) B) and D)
F) B) and C)

Question 18

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

Question 19

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

Accepted Answer

Prior to the Great Depression, the class...

Question 20

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Accepted Answer

A) True 
 B)False

Exam 30: Macroeconomics- Events and Ideas

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the aggregate demand curve would cause a(n) :

Correct Answer
verified

When the Fed pursues a policy of quantitative easing, it:

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

The General Theory of Employment, Interest, and Money was written by:

Correct Answer
verified

Macroeconomic policy activism:

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

Classical economists point out that:

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

Correct Answer
verified

Classical economics is based primarily on the works of John Maynard Keynes.

Correct Answer
verified

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Correct Answer
verified

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:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Keynes suggested that money is:

Correct Answer
verified

Which of the following does NOT represent the broad consensus among macroeconomists?

Correct Answer
verified

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

Correct Answer
verified

Rational expectations theory suggests that:

Correct Answer
verified

Which of the following BEST explains why the Fed flirted with monetarism but then gave up?

Correct Answer
verified

Exam 30: Macroeconomics- Events and Ideas

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the aggregate demand curve would cause a(n) :

Correct AnswerverifiedShow Answer

When the Fed pursues a policy of quantitative easing, it:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The General Theory of Employment, Interest, and Money was written by:

Correct AnswerverifiedShow Answer

Macroeconomic policy activism:

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

Classical economists point out that:

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

Correct AnswerverifiedShow Answer

Classical economics is based primarily on the works of John Maynard Keynes.

Correct AnswerverifiedShow Answer

According to the Great Moderation consensus, the effectiveness of economic policy is limited by the political business cycle.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Keynes suggested that money is:

Correct AnswerverifiedShow Answer

Which of the following does NOT represent the broad consensus among macroeconomists?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Rational expectations theory suggests that:

Correct AnswerverifiedShow Answer

Which of the following BEST explains why the Fed flirted with monetarism but then gave up?

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

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

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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