Question 1

Critics of real business cycle theory have problems with the claim that the economy experiences

Accepted Answer

A)  large negative shocks to productivity. 
B)  large negative shocks to aggregate demand. 
C)  large negative shocks to consumption spending. 
D)  contractionary fiscal policy. 
A)  large negative shocks to productivity. 
B)  large negative shocks to aggregate demand. 
C)  large negative shocks to consumption spending. 
D)  contractionary fiscal policy. A

Question 2

Real business cycle theorists tend to argue that

Accepted Answer

A)  fiscal policy has a large impact on production and employment. 
B)  fluctuations in the money stock and interest rates lead changes in output and employment. 
C)  monetary policy has little impact on production and employment. 
D)  changes in consumption spending is the key to fluctuations in production and employment. 
A)  fiscal policy has a large impact on production and employment. 
B)  fluctuations in the money stock and interest rates lead changes in output and employment. 
C)  monetary policy has little impact on production and employment. 
D)  changes in consumption spending is the key to fluctuations in production and employment. C

Question 3

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

Accepted Answer

A)  the role of expectations of future profits in determining investment. 
B)  the volatility of expectations of future profits. 
C)  the government should take control of production and employment. 
D)  the multiplier process. 
A)  the role of expectations of future profits in determining investment. 
B)  the volatility of expectations of future profits. 
C)  the government should take control of production and employment. 
D)  the multiplier process. C

Question 4

Economists working in both Keynesian and monetarist traditions believe each of the following is a key element in understanding business cycles except

Accepted Answer

A)  the need to understand the determinants of nominal aggregate demand. 
B)  the need to understand the division of changes in nominal aggregate demand into changes in production (and employment) and changes in prices (inflation or deflation). 
C)  real fundamentals effectively determine the values of real quantities like GDP even in the short run. 
D)  the need to understand the velocity of money, the determinants of investment spending, the multiplier, . crowding out, the natural rate of unemployment, the rate of expected inflation, and the Phillips curve. 
A)  the need to understand the determinants of nominal aggregate demand. 
B)  the need to understand the division of changes in nominal aggregate demand into changes in production (and employment) and changes in prices (inflation or deflation). 
C)  real fundamentals effectively determine the values of real quantities like GDP even in the short run. 
D)  the need to understand the velocity of money, the determinants of investment spending, the multiplier, . crowding out, the natural rate of unemployment, the rate of expected inflation, and the Phillips curve.

Question 5

In the standard view, fiscal surpluses

Accepted Answer

A)  contract the economy in the long run unless the central bank takes action to lower interest rates. 
B)  contract the economy in the long run unless the central bank does not take action to lower interest rates. 
C)  contract the economy in the short run unless the central bank takes actions to lower interest rates. 
D)  contract the economy in the short run unless the central bank takes action to raise interest rates. 
A)  contract the economy in the long run unless the central bank takes action to lower interest rates. 
B)  contract the economy in the long run unless the central bank does not take action to lower interest rates. 
C)  contract the economy in the short run unless the central bank takes actions to lower interest rates. 
D)  contract the economy in the short run unless the central bank takes action to raise interest rates.

Question 6

Each of the following would have been found in a macroeconomics textbook in 1960 except

Accepted Answer

A)  the Solow growth model. 
B)  much discussion of monetary policy and a downplaying of fiscal policy. 
C)  the consumption function. 
D)  the multiplier. 
A)  the Solow growth model. 
B)  much discussion of monetary policy and a downplaying of fiscal policy. 
C)  the consumption function. 
D)  the multiplier.

Question 7

The rational expectations macroeconomists

Accepted Answer

A)  argued that Keynesian economics analysis of expectations was correct. 
B)  argued that Keynesian economics emphasis on fiscal policy was correct. 
C)  argued that Keynesian economics emphasis on monetary policy was correct. 
D)  argued that Keynesian economics had failed to think through the importance of expectations. 
A)  argued that Keynesian economics analysis of expectations was correct. 
B)  argued that Keynesian economics emphasis on fiscal policy was correct. 
C)  argued that Keynesian economics emphasis on monetary policy was correct. 
D)  argued that Keynesian economics had failed to think through the importance of expectations.

Question 8

Whether you think that real business cycle theory is promising depends on answers to each of the following questions except

Accepted Answer

A)  should the fact that a reduction in work hours shows up as some people becoming wholly unemployed change one's interpretation of what causes a decline in total hours worked? 
B)  should the fact that many wages and prices are not flexible lead one to assign a prominent role to monetary factors as causes of real fluctuations in output and employment? 
C)  how large are "technology" shocks to the economy? 
D)  how large are "demand" shocks to the economy? 
A)  should the fact that a reduction in work hours shows up as some people becoming wholly unemployed change one's interpretation of what causes a decline in total hours worked? 
B)  should the fact that many wages and prices are not flexible lead one to assign a prominent role to monetary factors as causes of real fluctuations in output and employment? 
C)  how large are "technology" shocks to the economy? 
D)  how large are "demand" shocks to the economy?

Question 9

According to real business cycle theorists, each of the following is an explanation as to why production increases except

Accepted Answer

A)  an improvement in production technology. 
B)  a unique opportunity for investment. 
C)  an increase in the value of output. 
D)  an expansionary fiscal policy. 
A)  an improvement in production technology. 
B)  a unique opportunity for investment. 
C)  an increase in the value of output. 
D)  an expansionary fiscal policy.

Question 10

According to real business cycle theorists, the incentive to work hard now depends on each of the following except

Accepted Answer

A)  the wage now. 
B)  the real exchange rate. 
C)  the wage expected in the future. 
D)  the real interest rate. 
A)  the wage now. 
B)  the real exchange rate. 
C)  the wage expected in the future. 
D)  the real interest rate.

Question 11

Each of the following was part of Milton Friedman's critique of the dominant tradition in macroeconomics in the 1960s except

Accepted Answer

A)  then-standard models greatly overestimated the government's ability to manage and control the
Economy. 
B)  then-standard models greatly underestimated the power of fiscal policy and greatly overestimated the power of monetary policy. 
C)  then-standard models neglected the role of expected inflation and its role in positioning the Phillips curve. 
D)  the measurement of the money supply told you most of what you needed to know about how economic policy was working. 
A)  then-standard models greatly overestimated the government's ability to manage and control the
Economy. 
B)  then-standard models greatly underestimated the power of fiscal policy and greatly overestimated the power of monetary policy. 
C)  then-standard models neglected the role of expected inflation and its role in positioning the Phillips curve. 
D)  the measurement of the money supply told you most of what you needed to know about how economic policy was working.

Question 12

The existence of real business cycle theory is a call for all economists

Accepted Answer

A)  to spend more time thinking about the determinants of consumption spending fluctuations. 
B)  to spend more time thinking about the determinants of monetary policy fluctuations. 
C)  to spend more time thinking about the determinants of international trade fluctuations. 
D)  to spend more time thinking about the determinants of investment spending fluctuations. 
A)  to spend more time thinking about the determinants of consumption spending fluctuations. 
B)  to spend more time thinking about the determinants of monetary policy fluctuations. 
C)  to spend more time thinking about the determinants of international trade fluctuations. 
D)  to spend more time thinking about the determinants of investment spending fluctuations.

Question 13

Each of the following is a problem that economists have with Ricardian Equivalence except

Accepted Answer

A)  myopia - perhaps people are not far-sighted enough to fully work out what an increased deficit in the present implies for their future taxes. 
B)  myopia - perhaps people are not near-sighted enough to fully work out what an increased deficit in the present implies for their future taxes. 
C)  liquidity constraints - perhaps people can't easily borrow and lend as needed. 
D)  people are different - those that are the beneficiaries of government spending today may not be the ones who will have to pay the increased taxes in the future. 
A)  myopia - perhaps people are not far-sighted enough to fully work out what an increased deficit in the present implies for their future taxes. 
B)  myopia - perhaps people are not near-sighted enough to fully work out what an increased deficit in the present implies for their future taxes. 
C)  liquidity constraints - perhaps people can't easily borrow and lend as needed. 
D)  people are different - those that are the beneficiaries of government spending today may not be the ones who will have to pay the increased taxes in the future.

Question 14

Macroeconomists in the early 1960s

Accepted Answer

A)  tended to think that the short-run Phillips curve was fixed and that aggregate demand could be increased without causing the Phillips curve to shift to the right. 
B)  tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the right. 
C)  tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the left. 
D)  tended to think that supply created its own demand. 
A)  tended to think that the short-run Phillips curve was fixed and that aggregate demand could be increased without causing the Phillips curve to shift to the right. 
B)  tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the right. 
C)  tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the left. 
D)  tended to think that supply created its own demand.

Question 15

New Keynesian Economics suggests each of the following as a possible explanation for the stickiness in wages and prices except

Accepted Answer

A)  prices do not adjust immediately and completely in the short run because it is costly to change them. 
B)  a price adjustment or a failure to adjust prices on the part of one firm affects other firms. 
C)  one firm's best choice for its price depends on the prices that other firms are charging. 
D)  changing prices does not allow firms to maximize profits. 
A)  prices do not adjust immediately and completely in the short run because it is costly to change them. 
B)  a price adjustment or a failure to adjust prices on the part of one firm affects other firms. 
C)  one firm's best choice for its price depends on the prices that other firms are charging. 
D)  changing prices does not allow firms to maximize profits.

Question 16

An example of an aggregate demand externality is

Accepted Answer

A)  the costs that aggregate demand changes impose on third parties. 
B)  as long as total nominal demand is fixed, the economy as a whole benefits more by one firm's reduction in price than that one firm does. 
C)  as long as total nominal demand is fixed, the economy as a whole is adversely affected by one form's reduction in price than that one firm is. 
D)  the pollution caused by a chemical factory that is not captured in the costs of the chemicals. 
A)  the costs that aggregate demand changes impose on third parties. 
B)  as long as total nominal demand is fixed, the economy as a whole benefits more by one firm's reduction in price than that one firm does. 
C)  as long as total nominal demand is fixed, the economy as a whole is adversely affected by one form's reduction in price than that one firm is. 
D)  the pollution caused by a chemical factory that is not captured in the costs of the chemicals.

Question 17

In the standard view, fiscal deficits

Accepted Answer

A)  stimulate the economy in the long run as long as the central bank takes action to raise interest rates. 
B)  stimulate the economy in the long run as long as the central bank does not take action to raise interest rates. 
C)  stimulate the economy in the short run as long as the central bank takes actions to raise interest rates. 
D)  stimulate the economy in the short run as long as the central bank does not take action to neutralize the fiscal stimulus. 
A)  stimulate the economy in the long run as long as the central bank takes action to raise interest rates. 
B)  stimulate the economy in the long run as long as the central bank does not take action to raise interest rates. 
C)  stimulate the economy in the short run as long as the central bank takes actions to raise interest rates. 
D)  stimulate the economy in the short run as long as the central bank does not take action to neutralize the fiscal stimulus.

Question 18

According to real business cycle theorists, each of the following is a reason why hours worked would increase except

Accepted Answer

A)  the current wage increases relative to the future wage. 
B)  labor becomes more productive. 
C)  the real interest rate decreases. 
D)  highly valuable investment opportunities become more plentiful. 
A)  the current wage increases relative to the future wage. 
B)  labor becomes more productive. 
C)  the real interest rate decreases. 
D)  highly valuable investment opportunities become more plentiful.

Question 19

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

Accepted Answer

A)  the role of expectations of future profits in determining investment. 
B)  the volatility of expectations of consumers. 
C)  the power of the government to affect the economy through fiscal and monetary policy. 
D)  the multiplier process. 
A)  the role of expectations of future profits in determining investment. 
B)  the volatility of expectations of consumers. 
C)  the power of the government to affect the economy through fiscal and monetary policy. 
D)  the multiplier process.

Question 20

According to real business cycle theorists, each of the following is an explanation as to why production decreases except

Accepted Answer

A)  a reduction in production technology. 
B)  lack of investment opportunities. 
C)  a decrease in the value of output. 
D)  a contractionary fiscal policy. 
A)  a reduction in production technology. 
B)  lack of investment opportunities. 
C)  a decrease in the value of output. 
D)  a contractionary fiscal policy.

Critics of real business cycle theory have problems with the claim that the economy experiences

Real business cycle theorists tend to argue that

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

Economists working in both Keynesian and monetarist traditions believe each of the following is a key element in understanding business cycles except

In the standard view, fiscal surpluses

Each of the following would have been found in a macroeconomics textbook in 1960 except

The rational expectations macroeconomists

Whether you think that real business cycle theory is promising depends on answers to each of the following questions except

According to real business cycle theorists, each of the following is an explanation as to why production increases except

According to real business cycle theorists, the incentive to work hard now depends on each of the following except

Each of the following was part of Milton Friedman's critique of the dominant tradition in macroeconomics in the 1960s except

The existence of real business cycle theory is a call for all economists

Each of the following is a problem that economists have with Ricardian Equivalence except

Macroeconomists in the early 1960s

New Keynesian Economics suggests each of the following as a possible explanation for the stickiness in wages and prices except

An example of an aggregate demand externality is

In the standard view, fiscal deficits

According to real business cycle theorists, each of the following is a reason why hours worked would increase except

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

According to real business cycle theorists, each of the following is an explanation as to why production decreases except

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

Epilogue

Filters

Exam 17: The Future of Macroeconomics

Critics of real business cycle theory have problems with the claim that the economy experiences

Real business cycle theorists tend to argue that

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

Economists working in both Keynesian and monetarist traditions believe each of the following is a key element in understanding business cycles except

In the standard view, fiscal surpluses

Each of the following would have been found in a macroeconomics textbook in 1960 except

The rational expectations macroeconomists

Whether you think that real business cycle theory is promising depends on answers to each of the following questions except

According to real business cycle theorists, each of the following is an explanation as to why production increases except

According to real business cycle theorists, the incentive to work hard now depends on each of the following except

Each of the following was part of Milton Friedman's critique of the dominant tradition in macroeconomics in the 1960s except

The existence of real business cycle theory is a call for all economists

Each of the following is a problem that economists have with Ricardian Equivalence except

Macroeconomists in the early 1960s

New Keynesian Economics suggests each of the following as a possible explanation for the stickiness in wages and prices except

An example of an aggregate demand externality is

In the standard view, fiscal deficits

According to real business cycle theorists, each of the following is a reason why hours worked would increase except

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

According to real business cycle theorists, each of the following is an explanation as to why production decreases except

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

Epilogue

Filters