Exam 17: Macroeconomics: Events and Ideas

Use the following to answer questions: -(Figure: Classical Versus Keynesian Macroeconomics) Refer to Figure: Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD₁ to AD₂, perhaps because of a large decline in investment spending by businesses, the price level will _____ and real GDP will _____.

Under rational expectations, government policy can be effective:

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

Most economists today believe that the appropriate monetary and/or fiscal policy can permanently reduce the unemployment rate below the natural rate.

Keynes believed that to end the Great Depression:

Keynesian economics emphasized that economic downturns could be due to:

The natural rate hypothesis:

Keynesian economics emphasized the:

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

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

Nearly all economists agree that fiscal policy _____ keep the economy _____.

The General Theory of Employment, Interest, and Money, written by _____ and published in _____, transformed the way economists thought about macroeconomics.

In the late 1970s and early 1980s, the Federal Reserve:

If the money supply is growing at a constant rate of 2% and the economy undergoes a negative demand shock, the theory of monetarism recommends:

Crowding out is MOST likely when expansionary fiscal policy is accompanied by:

Monetarism asserts that GDP will grow steadily if the:

Most economists today believe that:

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

Which view of macroeconomics holds that a decrease in the money supply will reduce inflationary pressure?

Classical economists point out that: