Question 1

Monetarists argued that fiscal policy was ineffective if the money supply increased.

Accepted Answer

A) True 
 B)False

Question 2

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

Accepted Answer

A)  Ronald Reagan.
B)  John Maynard Keynes.
C)  Adam Smith.
D)  Barack Obama.E) A) and B)
F) B) and C)

Question 3

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

Question 4

Use the following to answer questions :
Figure: Fiscal Policy with a Fixed Money Supply 2. Now government deficit spending is decreased, but the Federal Reserve expands the money supply. According to this model: A) real GDP will decrease just as much as it would if the Federal Reserve had not expanded the money supply. B) real GDP will decrease, but not as much as it would if the Federal Reserve had failed to expand the money supply. C) real GDP will expand, but not as much as it would if the Federal Reserve had not expanded the money supply. D) interest rates will increase." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Fiscal Policy with a Fixed Money Supply)  Look at the 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:

Accepted Answer

A)  real GDP will decrease just as much as it would if the Federal Reserve had not expanded the money supply.
B)  real GDP will decrease, but not as much as it would if the Federal Reserve had failed to expand the money supply.
C)  real GDP will expand, but not as much as it would if the Federal Reserve had not expanded the money supply.
D)  interest rates will increase.E) A) and B)
F) All of the above

Question 5

Pablo believed that short-run changes in aggregate demand affected aggregate output as well as the price level. He believed that there was a role for monetary policy in managing the economy, but he advocated a simple monetary rule that would increase the money supply at a constant rate to grow the economy. Pablo was best described as a:

Accepted Answer

A)  Keynesian.
B)  new classical economist.
C)  supply-sider.
D)  monetarist.E) A) and C)
F) B) and C)

Question 6

Prior to the Great Depression, many policy makers:

Accepted Answer

A)  believed activist policies were important to the well-being of an economy.
B)  focused on short-run economic problems.
C)  believed that long-run economic performance was the most important goal.
D)  believed economies always performed below their potential output level.E) A) and D)
F) A) and C)

Question 7

There may NOT have been business cycles in the United States before 1854 because:

Accepted Answer

A)  the country was growing too rapidly to have a recession.
B)  the banking system established by Alexander Hamilton prevented business cycles.
C)  monetary policy conducted by the Fed was very successful.
D)  the economy was agricultural.E) A) and B)
F) All of the above

Question 8

Classical economists believed all of the following EXCEPT that:

Accepted Answer

A)  there could be temporary periods of unemployment.
B)  emphasis should be on the long run, and in the long run all would be set right because of the smooth functioning of the price system.
C)  the Great Depression would be a short-run aberration.
D)  monetary policy could tame the business cycle.E) B) and C)
F) All of the above

Question 9

Many economists believe that:

Accepted Answer

A)  fiscal policy can be used effectively to reduce unemployment below its natural rate.
B)  monetary policy can be used effectively to reduce unemployment below its natural rate.
C)  discretionary fiscal policy should be used sparingly because political influence may manipulate its implementation and use.
D)  monetary rules are best.E) A) and B)
F) C) and D)

Question 10

Use the following to answer questions :
Figure: Fiscal Policy with a Fixed Money Supply 1. Now government deficit spending is increased, but the Federal Reserve does NOT expand the money supply. According to this model: A) real GDP will expand just as much as if the Federal Reserve had expanded the money supply. B) real GDP will decrease because the Federal Reserve did not expand the money supply. C) real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply. D) interest rates will decrease." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Fiscal Policy with a Fixed Money Supply)  Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy is at E1. Now government deficit spending is increased, but the Federal Reserve does NOT expand the money supply. According to this model:

Accepted Answer

A)  real GDP will expand just as much as if the Federal Reserve had expanded the money supply.
B)  real GDP will decrease because the Federal Reserve did not expand the money supply.
C)  real GDP will expand, but not as much as if the Federal Reserve had expanded the money supply.
D)  interest rates will decrease.E) B) and C)
F) A) and D)

Question 11

Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Accepted Answer

A)  aggregate demand
B)  the growth of factor productivity
C)  fiscal policy
D)  monetary policyE) B) and C)
F) A) and B)

Question 12

Keynes believed that:

Accepted Answer

A)  monetary policies had the greatest impact on the economy.
B)  long-run effects were most important and activist policies were most likely to be detrimental.
C)  business decisions could be understood if policy makers did not use activist policies.
D)  short-run effects were important and changes in aggregate demand could affect output and price levels.E) C) and D)
F) All of the above

Question 13

The classical school of economics:

Accepted Answer

A)  emphasizes the short run.
B)  emphasizes the flexibility of wages and prices.
C)  has a problem with potential output, since potential output cannot be achieved without active policy.
D)  advocates the use of discretionary fiscal policy.E) B) and D)
F) A) and B)

Question 14

The main idea behind monetarism is that:

Accepted Answer

A)  the aggregate output will be even greater than potential output if the money supply grows at a constant rate.
B)  the aggregate price level will increase proportionally if the money supply grows at a constant rate.
C)  the government budget will have a deficit if the government spending grows at a constant rate.
D)  the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.E) All of the above
F) None of the above

Question 15

Nancy believes that the best way to grow the economy is through tax cuts to increase the incentive to work and invest. Though these tax cuts might initially increase the budget deficit, Nancy is convinced that the economic growth that results will actually increase government tax revenue. Nancy is best described as a:

Accepted Answer

A)  monetarist.
B)  classical economist.
C)  new Keynesian.
D)  supply-sider.E) A) and D)
F) B) and C)

Question 16

According to the real business cycle theory, fluctuations in output are caused by:

Accepted Answer

A)  fluctuations in the growth rate of total factor productivity.
B)  changes in aggregate demand.
C)  changes in the money supply.
D)  discretionary fiscal policy.E) B) and D)
F) C) and D)

Question 17

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

Question 18

Keynesian economics emphasized the:

Accepted Answer

A)  role of money.
B)  long run.
C)  impact of changes in aggregate demand.
D)  impact of changes in aggregate supply.E) A) and D)
F) All of the above

Question 19

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Accepted Answer

This Keynesian will likely recommend dis...

Question 20

Someone who believes in macroeconomic policy activism is likely to suggest that:

Accepted Answer

A)  changes in the money supply or changes in fiscal policy will most likely destabilize the economy.
B)  balancing the government budget is more important than current economic problems.
C)  keeping the money supply growing at a constant rate would help the economy.
D)  changes in monetary or fiscal policy would smooth out the business cycle.E) A) and B)
F) A) and C)

Exam 18: Events and Ideas

The classical school of economics:

Correct Answer
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The main idea behind monetarism is that:

Correct Answer
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Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Correct Answer
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The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Correct Answer
verified
This Keynesian will likely recommend dis...
View Answer

Prior to the Great Depression, many policy makers:

Correct Answer
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Correct Answer
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Keynes believed that:

Correct Answer
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According to the real business cycle theory, fluctuations in output are caused by:

Correct Answer
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Classical economists believed all of the following EXCEPT that:

Correct Answer
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There may NOT have been business cycles in the United States before 1854 because:

Correct Answer
verified

Someone who believes in macroeconomic policy activism is likely to suggest that:

Correct Answer
verified

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

Correct Answer
verified

Correct Answer
verified

Many economists believe that:

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

Monetarists argued that fiscal policy was ineffective if the money supply increased.

Correct Answer
verified

Correct Answer
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Correct Answer
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Keynesian economics emphasized the:

Correct Answer
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Classical economists point out that:

Correct Answer
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Exam 18: Events and Ideas

The classical school of economics:

Correct AnswerverifiedShow Answer

The main idea behind monetarism is that:

Correct AnswerverifiedShow Answer

Real business cycle theory suggests that changes in _____ are the primary cause of business cycles.

Correct AnswerverifiedShow Answer

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Correct AnswerverifiedThis Keynesian will likely recommend dis...View AnswerShow Answer

Prior to the Great Depression, many policy makers:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Keynes believed that:

Correct AnswerverifiedShow Answer

According to the real business cycle theory, fluctuations in output are caused by:

Correct AnswerverifiedShow Answer

Classical economists believed all of the following EXCEPT that:

Correct AnswerverifiedShow Answer

There may NOT have been business cycles in the United States before 1854 because:

Correct AnswerverifiedShow Answer

Someone who believes in macroeconomic policy activism is likely to suggest that:

Correct AnswerverifiedShow Answer

The groundbreaking book The General Theory of Employment, Money, and Interest was written by famed economist:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Many economists believe that:

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

Monetarists argued that fiscal policy was ineffective if the money supply increased.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Keynesian economics emphasized the:

Correct AnswerverifiedShow Answer

Classical economists point out that:

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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This Keynesian will likely recommend dis...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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