Question 1

Keynesian economics emphasizes _____ shifts in aggregate _____.

Accepted Answer

A) long-run; demand 
B) long-run; supply 
C) short-run; demand 
D) short-run; supply 
A) long-run; demand 
B) long-run; supply 
C) short-run; demand 
D) short-run; supply

Question 2

According to the theory of rational expectations, individuals will respond to expansionary monetary policy by predicting:

Accepted Answer

A) a lower rate of inflation. 
B) a higher rate of inflation. 
C) no change in the rate of inflation. 
D) incorrectly what will happen to the price level and employment. 
A) a lower rate of inflation. 
B) a higher rate of inflation. 
C) no change in the rate of inflation. 
D) incorrectly what will happen to the price level and employment.

Question 3

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Accepted Answer

A) maturity transformation. 
B) shadow banking. 
C) quantitative easing. 
D) debt overhang. 
A) maturity transformation. 
B) shadow banking. 
C) quantitative easing. 
D) debt overhang.

Question 4

Keynes's ideas were:

Accepted Answer

A) quickly adopted in the 1930s to end the Great Depression. 
B) slowly but consistently used in 2008 to end the Great Recession. 
C) used somewhat to help reduce the Great Depression. 
D) ignored in the Great Depression. 
A) quickly adopted in the 1930s to end the Great Depression. 
B) slowly but consistently used in 2008 to end the Great Recession. 
C) used somewhat to help reduce the Great Depression. 
D) ignored in the Great Depression.

Question 5

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

Accepted Answer

A) budget deficits. 
B) lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap. 
C) budget surpluses. 
D) sacrificing equity for efficiency. 
A) budget deficits. 
B) lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap. 
C) budget surpluses. 
D) sacrificing equity for efficiency.

Question 6

Challenges to Keynesian economics were based on:

Accepted Answer

A) the fact that lags in fiscal policy make it relatively ineffective. 
B) the liquidity trap, which makes fiscal policy ineffective. 
C) the possibility of a trade-off between inflation and unemployment. 
D) the usefulness of discretionary fiscal policy. 
A) the fact that lags in fiscal policy make it relatively ineffective. 
B) the liquidity trap, which makes fiscal policy ineffective. 
C) the possibility of a trade-off between inflation and unemployment. 
D) the usefulness of discretionary fiscal policy.

Question 7

The monetary policy rule suggests that:

Accepted Answer

A) we should follow the rules set by the Fed. 
B) the Fed should follow the rules set by Congress. 
C) the interest rate should grow at a slow and steady pace. 
D) the money supply should grow at a slow and steady pace. 
A) we should follow the rules set by the Fed. 
B) the Fed should follow the rules set by Congress. 
C) the interest rate should grow at a slow and steady pace. 
D) the money supply should grow at a slow and steady pace.

Question 8

According to the Great Moderation consensus, expansionary fiscal policy will shift the aggregate demand curve to the _____ and lead to a _____ level of output and a _____ level of employment in the short run.

Accepted Answer

A) right; higher; higher 
B) left; lower; lower 
C) right; higher; lower 
D) left; lower; higher 
A) right; higher; higher 
B) left; lower; lower 
C) right; higher; lower 
D) left; lower; higher

Question 9

If a contraction in aggregate demand causes a recession, the Great Moderation consensus on macroeconomics suggests that:

Accepted Answer

A) fiscal discipline with a balanced budget eventually stimulates aggregate demand. 
B) fiscal policy should take the leading role in economic stabilization. 
C) the use of discretionary fiscal policy is counterproductive except in special circumstances. 
D) monetary discipline with a reduction in the money supply eventually stimulates aggregate demand. 
A) fiscal discipline with a balanced budget eventually stimulates aggregate demand. 
B) fiscal policy should take the leading role in economic stabilization. 
C) the use of discretionary fiscal policy is counterproductive except in special circumstances. 
D) monetary discipline with a reduction in the money supply eventually stimulates aggregate demand.

Question 10

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

Accepted Answer

A) if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and help the government achieve its goal. 
B) if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and inflation expectations will immediately rise. 
C) a government attempt to trade off higher inflation for lower unemployment would not work in the short run but would be fine in the long run. 
D) even if people are not expecting inflation and are unaware of government policies, inflation expectations are still going to be embedded. 
A) if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and help the government achieve its goal. 
B) if it's clear that the government intends to trade off higher inflation for lower unemployment, the public will understand this and inflation expectations will immediately rise. 
C) a government attempt to trade off higher inflation for lower unemployment would not work in the short run but would be fine in the long run. 
D) even if people are not expecting inflation and are unaware of government policies, inflation expectations are still going to be embedded.

Question 11

Use the following to answer questions :
Scenario: The Velocity Equation
Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2.
-(Scenario: The Velocity Equation) Look at the scenario The Velocity Equation. If the money supply is $5 trillion, then the velocity of money is:

Accepted Answer

A) 5. 
B) 8. 
C) 4 
D) 10. 
A) 5. 
B) 8. 
C) 4 
D) 10.

Question 12

Which of the following schools of thought believe that expansionary monetary policy has very little or no effect on output?
I. Keynesian macroeconomics
II. Great Moderation consensus

Accepted Answer

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

Question 13

According to the real business cycle theory, the primary source of fluctuations in real output is changes in the:

Accepted Answer

A) level of investment spending by manufacturing firms. 
B) rate of growth of total factor productivity. 
C) rate of growth of the aggregate price level. 
D) level of spending on durable goods by households. 
A) level of investment spending by manufacturing firms. 
B) rate of growth of total factor productivity. 
C) rate of growth of the aggregate price level. 
D) level of spending on durable goods by households.

Question 14

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

Accepted Answer

A) classical 
B) classical and monetarist 
C) classical and Keynesian 
D) Keynesian and Great Moderation consensus 
A) classical 
B) classical and monetarist 
C) classical and Keynesian 
D) Keynesian and Great Moderation consensus

Question 15

The slump that followed the 2008 financial crisis is called the:

Accepted Answer

A) Great Depression 
B) Great Moderation. 
C) Great Recession. 
D) Great Modernization. 
A) Great Depression 
B) Great Moderation. 
C) Great Recession. 
D) Great Modernization.

Question 16

_____ answers NO to all five key questions about whether macroeconomic policy, either monetary or fiscal, can help fight recession, reduce unemployment, or should be used in a discretionary way.

Accepted Answer

A) Classical macroeconomics 
B) Keynesian economics 
C) Rational expectations theory 
D) Monetarism 
A) Classical macroeconomics 
B) Keynesian economics 
C) Rational expectations theory 
D) Monetarism

Question 17

Nearly all economists agree that central banks should:

Accepted Answer

A) be subject to political control. 
B) be elected by voters. 
C) be independent. 
D) play a minor role in the economy. 
A) be subject to political control. 
B) be elected by voters. 
C) be independent. 
D) play a minor role in the economy.

Question 18

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Accepted Answer

A) debt overhang. 
B) the natural rate hypothesis. 
C) supply-side economics. 
D) Ricardian equivalence. 
A) debt overhang. 
B) the natural rate hypothesis. 
C) supply-side economics. 
D) Ricardian equivalence.

Question 19

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

Accepted Answer

A) True 
 B)False

Question 20

Keynesian economics emphasized that economic downturns could be due to:

Accepted Answer

A) inflation. 
B) technological shocks. 
C) a decline in business confidence. 
D) deflation. 
A) inflation. 
B) technological shocks. 
C) a decline in business confidence. 
D) deflation.

Keynesian economics emphasizes _ shifts in aggregate _.

According to the theory of rational expectations, individuals will respond to expansionary monetary policy by predicting:

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Keynes's ideas were:

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

Challenges to Keynesian economics were based on:

The monetary policy rule suggests that:

According to the Great Moderation consensus, expansionary fiscal policy will shift the aggregate demand curve to the ___ and lead to a _ level of output and a ___ level of employment in the short run.

If a contraction in aggregate demand causes a recession, the Great Moderation consensus on macroeconomics suggests that:

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

Which of the following schools of thought believe that expansionary monetary policy has very little or no effect on output? I. Keynesian macroeconomics II. Great Moderation consensus

According to the real business cycle theory, the primary source of fluctuations in real output is changes in the:

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

The slump that followed the 2008 financial crisis is called the:

_____ answers NO to all five key questions about whether macroeconomic policy, either monetary or fiscal, can help fight recession, reduce unemployment, or should be used in a discretionary way.

Nearly all economists agree that central banks should:

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

Keynesian economics emphasized that economic downturns could be due to:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 18: Events and Ideas

Keynesian economics emphasizes _____ shifts in aggregate _____.

According to the theory of rational expectations, individuals will respond to expansionary monetary policy by predicting:

The monetary policy in which the Fed purchased assets other than short-term government securities is called:

Keynes's ideas were:

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of:

Challenges to Keynesian economics were based on:

The monetary policy rule suggests that:

According to the Great Moderation consensus, expansionary fiscal policy will shift the aggregate demand curve to the _____ and lead to a _____ level of output and a _____ level of employment in the short run.

If a contraction in aggregate demand causes a recession, the Great Moderation consensus on macroeconomics suggests that:

The rational expectations theory states that when individuals and firms make decisions, they take everything into account. Thus:

Which of the following schools of thought believe that expansionary monetary policy has very little or no effect on output? I. Keynesian macroeconomics II. Great Moderation consensus

According to the real business cycle theory, the primary source of fluctuations in real output is changes in the:

Using increased government spending and tax cuts to fight a recession is consistent with _____ economics.

The slump that followed the 2008 financial crisis is called the:

_____ answers NO to all five key questions about whether macroeconomic policy, either monetary or fiscal, can help fight recession, reduce unemployment, or should be used in a discretionary way.

Nearly all economists agree that central banks should:

The argument that households and firms view an increase in government spending as a sign that taxes will rise in the future and decrease current spending in anticipation of higher future taxes is called:

Monetarism asserts that GDP will grow steadily if the money supply grows steadily.

Keynesian economics emphasized that economic downturns could be due to:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Keynesian economics emphasizes _ shifts in aggregate _.

According to the Great Moderation consensus, expansionary fiscal policy will shift the aggregate demand curve to the ___ and lead to a _ level of output and a ___ level of employment in the short run.