Question 1

Nearly all economists agree that decreases in money supply can _____ aggregate _____.

Accepted Answer

A)   increase; supply
B)   decrease; supply
C)   decrease; demand
D)   increase; demandE) None of the above
F) A) and D)

Question 2

The theory of rational expectations contends that policy activism is:

Accepted Answer

A)   not warranted, because we don't know enough about the workings of the economy to stabilize it.
B)   not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted.
C)   warranted, because discretionary policies have a strong effect on real output.
D)   warranted, because expectations are rational only in the short run.E) A) and C)
F) C) and D)

Question 3

Classical economists focused on short-run effects of monetary policy.

Accepted Answer

A) True 
 B)False

Question 4

Policy makers before the Great Depression were:

Accepted Answer

A)   uncertain about the appropriate measure to use against a recession in the absence of any clear theory about the cause of business cycles.
B)   using both fiscal and monetary policies to combat the harmful effects of recession on output and employment.
C)   against using monetary policies to fight the economic downturns caused by business cycles.
D)   in favor of using only fiscal policies to fight the economic booms caused by business cycles.E) None of the above
F) A) and B)

Question 5

_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate price level, ignoring any _____ effects on aggregate output.

Accepted Answer

A)   Keynesian; long-run; monetary; short-run
B)   Classical; short-run; monetary; long-run
C)   Classical; long-run; monetary; short-run
D)   Keynesian; long-run; fiscal; short-runE) B) and D)
F) B) and C)

Question 6

Nearly all economists agree that increases in money supply can _____ aggregate _____.

Accepted Answer

A)   increase; supply
B)   decrease; supply
C)   decrease; demand
D)   increase; demandE) B) and D)
F) A) and C)

Question 7

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 C)
F) C) and D)

Question 8

The belief that expansionary monetary policy is NOT at all helpful to the economy in fighting recessions is attributed to:

Accepted Answer

A)   classical macroeconomics.
B)   Keynesian macroeconomics.
C)   monetarism.
D)   Great Moderation consensus.E) A) and B)
F) B) and D)

Question 9

Since 2005, Latvia has _____ government spending and had a sharp _____ in economic growth.

Accepted Answer

A)   cut; increase
B)   increased; increase
C)   cut; decrease
D)   increased; decreaseE) B) and D)
F) A) and B)

Question 10

Many economists favored using discretionary fiscal policy during the Great Recession because monetary policy could not be used when interest rates were near zero.

Accepted Answer

A) True 
 B)False

Question 11

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

Accepted Answer

As a monetarist, the economist believes ...

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Macroeconomic policy activism:

Accepted Answer

A)   is the use of monetary and fiscal policy to smooth out the business cycle.
B)   is the primary theory of classical economics.
C)   gives the Federal Reserve the sole responsibility for economic policy.
D)   advocates that all of the people in a democracy should decide what type of economic policy is appropriate.E) A) and B)
F) A) and C)

Question 14

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

Question 15

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool.
II)  the effectiveness of economic policy is limited by the political business cycle.

Accepted Answer

A)   I only
B)   II only
C)   I and II
D)   neither I nor IIE) B) and C)
F) A) and D)

Question 16

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of classical economics. What would this classical economist recommend or not recommend? Explain.

Accepted Answer

This economist would probably not recomm...

Question 17

Under rational expectations, government policy can be effective:

Accepted Answer

A)   if it is rationally thought out before implementation.
B)   if it is anticipated, so people can make realistic preparations.
C)   if it surprises people.
D)   whenever the economy reacts rationally to the decision.E) A) and D)
F) C) and D)

Question 18

Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

Which one of the following statements is TRUE?

Accepted Answer

A)   Keynes treated short-run macroeconomics as a minor issue.
B)   Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate output, employment, and prices, whereas the classical economists focused on the long-run determination of the aggregate price level.
C)   The classical economists believed that the short-run aggregate supply curve was upward sloping.
D)   The classical economists emphasized the short-run effects of shifts in aggregate demand on aggregate output, whereas Keynes focused on the long-run determination of the aggregate price level.E) B) and D)
F) A) and B)

Exam 30: Macroeconomics- Events and Ideas

Which one of the following statements is TRUE?

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Policy makers before the Great Depression were:

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The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

Correct AnswerverifiedAs a monetarist, the economist believes ...View AnswerShow Answer

The belief that expansionary monetary policy is NOT at all helpful to the economy in fighting recessions is attributed to:

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_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate price level, ignoring any _____ effects on aggregate output.

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Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth.

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The theory of rational expectations contends that policy activism is:

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Classical economists focused on short-run effects of monetary policy.

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

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Under rational expectations, government policy can be effective:

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Nearly all economists agree that increases in money supply can _____ aggregate _____.

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The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of classical economics. What would this classical economist recommend or not recommend? Explain.

Correct AnswerverifiedThis economist would probably not recomm...View AnswerShow Answer

Many economists favored using discretionary fiscal policy during the Great Recession because monetary policy could not be used when interest rates were near zero.

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

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Nearly all economists agree that decreases in money supply can _____ aggregate _____.

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

Correct AnswerverifiedShow Answer

According to the Great Moderation consensus: I. fiscal policy should be the main stabilization tool. II) the effectiveness of economic policy is limited by the political business cycle.

Correct AnswerverifiedShow Answer

Macroeconomic policy activism:

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Since 2005, Latvia has _____ government spending and had a sharp _____ in economic growth.

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New classical macroeconomists believe that the short-run aggregate:

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As a monetarist, the economist believes ...
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___ macroeconomists focused on the _ effects of _ policy on the aggregate price level, ignoring any ___ effects on aggregate output.

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Nearly all economists agree that increases in money supply can _ aggregate _.

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This economist would probably not recomm...
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Nearly all economists agree that decreases in money supply can _ aggregate _.

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Since 2005, Latvia has _ government spending and had a sharp _ in economic growth.

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