Question 1

A policy implication of monetarism is that:

Accepted Answer

A)   full employment will always be maintained.
B)   countercyclical policies have no effect on the economy.
C)   the growth of the money supply is caused by economic fluctuations.
D)   constant growth of the money supply is better than discretionary policies.E) B) and C)
F) A) and D)

Question 2

_____ was a _____ economist who believed that _____ in wages and prices could block adjustments to full employment.

Accepted Answer

A)   Adam Smith; British; flexibility
B)   Milton Friedman; U.S.; inflexibility
C)   John Maynard Keynes; British; stickiness
D)   Robert Lucas; U.S.; stickinessE) A) and B)
F) C) and D)

Question 3

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) A) and B)
F) A) and C)

Question 4

When interest rates are very high, the economy is in a liquidity trap, and monetary policy may be ineffective in fighting a recession.

Accepted Answer

A) True 
 B)False

Question 5

Which school of thought believes 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 IIE) A) and D)
F) A) and C)

Question 6

In the classical model, an increase in the money supply will result in:

Accepted Answer

A)   inflation only, without affecting aggregate output.
B)   economic expansion, as aggregate output will increase.
C)   higher interest rates, lower investment, and ultimately lower aggregate output.
D)   recession only, without affecting the aggregate price level.E) B) and D)
F) A) and D)

Question 7

Unlike the majority of countries in the world, ______experienced interest rates close to zero since the 1990s.

Accepted Answer

A)   Japan
B)   China
C)   the United States
D)   LatviaE) B) and D)
F) All of the above

Question 8

The political business cycle does NOT imply that:

Accepted Answer

A)   central banks should be independent of politics.
B)   discretionary fiscal policy should be avoided.
C)   politicians pumping up the economy in an election year make the economy less stable.
D)   monetary policy is ineffective if inflation is high.E) A) and B)
F) A) and C)

Question 9

Friedman argued that with a _____ money supply, velocity is _____ that there's not much point in using monetary policy.

Accepted Answer

A)   steady increase in the; large
B)   constant; small
C)   steady increase in the; constant
D)   constant; largeE) B) and C)
F) B) and D)

Question 10

The classical macroeconomists believed that fiscal policy was even less effective than monetary policy.

Accepted Answer

A) True 
 B)False

Question 11

The General Theory of Employment, Interest, and Money was written by:

Accepted Answer

A)   Adam Smith.
B)   Paul Samuelson.
C)   Joseph Schumpeter.
D)   John Maynard Keynes.E) A) and B)
F) C) and D)

Question 12

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) C) and D)
F) A) and D)

Question 13

To close an inflationary gap, the Great Moderation consensus on macroeconomics suggests that:

Accepted Answer

A)   a close coordination of fiscal and monetary policy is crucial.
B)   the automatic fiscal stabilizers are powerful enough to bring the economy back to equilibrium.
C)   policy makers should wait until a negative productivity shock brings the economy back to equilibrium.
D)   monetary policy should take the leading role in economic stabilization.E) C) and D)
F) A) and D)

Question 14

According to the classical model, prices are _____, making the aggregate supply curve _____ in the short run.

Accepted Answer

A)   sticky; upward sloping
B)   flexible; vertical
C)   flexible; downward sloping
D)   sticky; verticalE) A) and D)
F) All of the above

Question 15

The period of relative calm in the economy between 1985 and 2007 is called the Great Moderation.

Accepted Answer

A) True 
 B)False

Question 16

One argument in favor of quantitative easing is that:

Accepted Answer

A)   long-term interest rates have more influence over private spending than short-term interest rates.
B)   short-term interest rates have more influence over private spending than long-term rates.
C)   the private sector, not the Federal Reserve, should determine interest rates.
D)   it decreases the budget deficit.E) A) and D)
F) B) and D)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Classical macroeconomists believed that government could reduce the unemployment rate to a permanently low rate.

Accepted Answer

A) True 
 B)False

Question 19

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) All of the above
F) A) and B)

Question 20

If the unemployment rate rose, a classical economist would counsel the government to do nothing.

Accepted Answer

A) True 
 B)False

Exam 17: Macroeconomics: Events and Ideas

If the unemployment rate rose, a classical economist would counsel the government to do nothing.

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The General Theory of Employment, Interest, and Money was written by:

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Friedman argued that with a _____ money supply, velocity is _____ that there's not much point in using monetary policy.

Correct AnswerverifiedShow Answer

When interest rates are very high, the economy is in a liquidity trap, and monetary policy may be ineffective in fighting a recession.

Correct AnswerverifiedShow Answer

The period of relative calm in the economy between 1985 and 2007 is called the Great Moderation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Policy makers before the Great Depression were:

Correct AnswerverifiedShow Answer

Classical macroeconomists believed that government could reduce the unemployment rate to a permanently low rate.

Correct AnswerverifiedShow Answer

In the classical model, an increase in the money supply will result in:

Correct AnswerverifiedShow Answer

One argument in favor of quantitative easing is that:

Correct AnswerverifiedShow Answer

_____ was a _____ economist who believed that _____ in wages and prices could block adjustments to full employment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the classical model, prices are _____, making the aggregate supply curve _____ in the short run.

Correct AnswerverifiedShow Answer

A policy implication of monetarism is that:

Correct AnswerverifiedShow Answer

The classical macroeconomists believed that fiscal policy was even less effective than monetary policy.

Correct AnswerverifiedShow Answer

To close an inflationary gap, the Great Moderation consensus on macroeconomics suggests that:

Correct AnswerverifiedShow Answer

The political business cycle does NOT imply that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Unlike the majority of countries in the world, ______experienced interest rates close to zero since the 1990s.

Correct AnswerverifiedShow Answer

Which school of thought believes that expansionary monetary policy has very little or no effect on output? I. Keynesian macroeconomics II) Great Moderation consensus

Correct AnswerverifiedShow Answer

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Friedman argued that with a _ money supply, velocity is _ that there's not much point in using monetary policy.

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___ was a _ economist who believed that ___ in wages and prices could block adjustments to full employment.

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According to the classical model, prices are _, making the aggregate supply curve _ in the short run.

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

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