Page 21
100.
The concept of the monetary policy rule is based on the assumption that:
A)
discretionary fiscal policy crowds out investment spending.
B)
the natural rate of unemployment is constant in the long run.
C)
monetary policy lags are shorter than fiscal policy lags.
D)
the velocity of money is constant in the short run.
101.
Challenges to Keynesian economics were based on the:
A)
fact that lags in fiscal policy make it relatively ineffective.
B)
liquidity trap, which makes fiscal policy ineffective.
C)
possibility of a trade-off between inflation and unemployment.
D)
usefulness of discretionary fiscal policy.
102.
The monetary policy rule suggests that:
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.
103.
The Fed moved away from a monetary growth rule because _____ was/were unstable.
A)
the economy
B)
the money supply
C)
the velocity of money
D)
interest rates
104.
Monetarists argue that:
A)
the impact lag for monetary policy is short and predictable.
B)
stabilization policies may actually be destabilizing.
C)
the Federal Reserve System should use active monetary policy.
D)
active monetary policy should be used to reinforce active fiscal policy.
105.
Milton Friedman was a leader and major proponent of:
A)
monetarism.
B)
classical economics.
C)
Keynesian economics.
D)
rational expectations theory.
Page 22
106.
A policy implication of monetarism is that:
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.
107.
Monetarists argue that:
A)
the Federal Reserve System should allow the money supply to increase at a slow,
steady annual rate.
B)
since the velocity of money is unstable, a fixed annual increase in the money
supply will exacerbate inflation in the long run.
C)
self-correction is less effective than activist monetary policy.
D)
fiscal policy should always be used before monetary policy.
108.
Monetarists believe that:
A)
full employment is the norm.
B)
countercyclical policies do not affect the economy.
C)
a fixed increase in the rate of growth of the money supply is better than
discretionary policies.
D)
discretionary monetary policy is better than a fixed growth rate of the money
supply.
109.
The money velocity equation is stated as:
A)
M * V = P * Y.
B)
M * P = V * Y.
C)
M * Y = V * P.
D)
M * Y * P = V.
110.
The _____ hypothesis is that macroeconomic policy should be used to stabilize the
economy rather than to permanently decrease the unemployment rate.
A)
natural rate
B)
political business cycle
C)
rational expectations
D)
real business cycle
Page 23
111.
Under which conditions do some macroeconomists believe the natural rate hypothesis
does NOT work?
A)
periods of rapidly rising inflation
B)
high but constant inflation
C)
low or negative inflation
D)
high economic growth
112.
The Friedman–Phelps hypothesis claimed that the apparent trade-off between
unemployment and inflation would NOT survive an extended period of:
A)
rising unemployment.
B)
rising prices.
C)
rising interest rates.
D)
increases in the money supply.
113.
The natural rate hypothesis:
A)
is now generally discredited.
B)
implies sharp limits on what macroeconomic policy can achieve.
C)
implies there is a long-run trade-off between inflation and unemployment.
D)
implies that there is no liquidity trap.
114.
The Friedman–Phelps (natural rate) hypothesis made the strong prediction that:
A)
once inflation gets embedded in people’s expectations, unemployment and inflation
will have a trade-off.
B)
the unemployment and inflation trade-off will not survive if inflation gets
embedded in people’s expectations.
C)
there will always be an unemployment and inflation trade-off.
D)
the unemployment and inflation trade-off is a myth.
115.
The political business cycle does NOT imply that:
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.
116.
The political business cycle refers to policies that:
A)
slow down the economy in election years.
B)
keep the economy on a constant growth path.
C)
speed the economy up in election years.
D)
run surpluses in election years.
Page 24
117.
Use of activist fiscal and monetary policy can bring rapid growth, as was the case in the
United States before the 1972 election. One consequence of an activist policy is:
A)
use of macroeconomic policy that stabilizes the economy.
B)
a political business cycle caused by the use of macroeconomic policy to serve
political ends.
C)
countercyclical macroeconomic policy designed to help the economy.
D)
crowding out as decreases in government spending push out the private business
spending.
118.
Since fiscal policy can be manipulated by partisan political interests:
A)
the political business cycle may drive the economic business cycle.
B)
we may see lower interest rates before elections and higher interest rates after
elections.
C)
the economic business cycle may lead the political business cycle.
D)
we may see lower inflation and higher unemployment before elections.
119.
Fiscal policy is usually:
A)
more political than monetary policy.
B)
less political than monetary policy.
C)
neutral like monetary policy.
D)
having the same impact on all citizens.
120.
From 1979 to 1982, the Federal Reserve System:
A)
followed monetarist policy suggestions.
B)
initiated a sharply expansionary monetary policy.
C)
pursued a policy that shifted AD to the right.
D)
fell into the liquidity trap.
121.
In the late 1970s and early 1980s, the Federal Reserve:
A)
began targeting the money supply.
B)
began targeting interest rates.
C)
stopped targeting the money supply.
D)
began targeting both the interest rate and the money supply.
Page 25
122.
Since 1982, the Federal Reserve has:
A)
pursued a passive monetary policy.
B)
pursued a discretionary monetary policy, which has led to large swings in the
money supply.
C)
pursued a discretionary monetary policy, which has stabilized interest rates.
D)
abandoned interest rate targeting.
123.
Which statement BEST explains why the Fed flirted with monetarism but then gave up?
A)
The natural rate hypothesis failed to predict a worsening of the trade-off between
inflation and unemployment.
B)
A sharp rise in inflation during the 1970s broke the perceived trade-off between
inflation and unemployment and discredited traditional Keynesianism.
C)
Inflation started dropping off sharply in the 1980s, and this helped bolster the view
that targeting the money supply no longer made sense.
D)
It finally became evident that there was no longer a trade-off between inflation and
unemployment.
124.
Which statement is FALSE?
A)
Early Keynesianism downplayed the effectiveness of monetary as opposed to fiscal
policy.
B)
Monetarism argued that discretionary monetary policy does more harm than good.
C)
The natural rate hypothesis places sharp limits on what macroeconomic policy can
achieve.
D)
Concerns about a political business cycle suggest that the central bank should not
be independent and argue for a strong discretionary fiscal and monetary policy.
125.
Which statement about new classical macroeconomics is FALSE?
A)
It returned to the classical view that shifts in the aggregate demand curve affect
only the aggregate price level, not aggregate output.
B)
It challenged traditional arguments about the slope of the short-run aggregate
supply curve based on the concept of rational expectations.
C)
It suggested that changes in productivity cause economic fluctuations.
D)
It embraced the Keynesian notion that changes in aggregate demand may affect
aggregate output in the short run.
Page 26
126.
According to the theory of new classical economics, if business sentiment and
investment spending decrease, the aggregate demand curve _____, the price level falls,
and aggregate output _____.
A)
shifts right; increases
B)
shifts left; remains constant
C)
shifts right; decreases
D)
shifts left; decreases
127.
New classical economics:
A)
focuses on short-run economic fluctuations.
B)
returns to the view that shifts in aggregate demand affect only the price level.
C)
argues that the business cycle is caused by “animal spirits.”
D)
focuses on the trade-off between unemployment and inflation.
128.
New classical macroeconomists believe that the short-run aggregate:
A)
supply curve is vertical.
B)
demand curve is vertical.
C)
demand curve has a positive slope.
D)
supply curve is horizontal.
129.
Under rational expectations, government policy can be effective:
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.
130.
The set of ideas known as the new Keynesian economics states that:
A)
markets clear in the short run because prices adjust whenever there are surpluses or
shortages.
B)
market imperfections tend to make prices sticky in the short run.
C)
markets tend to be in equilibrium because of the inherent forces in the economy.
D)
wage and price inflation is the main problem that most economies face in the short
run.
Page 27
131.
The rational expectations theory states that when individuals and firms make decisions,
they take everything into account. Thus:
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.
132.
According to rational expectations, monetary policy is:
A)
always effective.
B)
effective only if it is unexpected.
C)
ineffective compared to fiscal policy.
D)
effective only when fiscal policy accommodates it.
133.
The theory of rational expectations is consistent with which statement?
A)
It takes into account only current information about inflation.
B)
It takes into account only past information about inflation.
C)
It takes into account past rates of inflation and available information about
monetary and fiscal policy.
D)
A government attempt to trade off higher inflation for lower unemployment would
work in the short run but would eventually fail because higher inflation would get
built into expectations.
134.
The theory of rational expectations states that:
A)
people make decisions optimally as often as they make decisions less than
optimally.
B)
expectations about future real wages are often irrational.
C)
people make decisions using all available information.
D)
designing effective economic policy is very difficult because of the shortage of
information.
135.
Rational expectations theory suggests that people and firms base their expectations on:
A)
the recent past.
B)
government announcements.
C)
“animal spirits.”
D)
all available information.
Page 28
136.
According to the theory of rational expectations, individuals will respond to
expansionary monetary policy by predicting:
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.
137.
The theory of rational expectations contends that policy activism is:
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.
138.
A hypothesis that individuals base their expectations on available information and act on
that information is called the:
A)
irrational forecasts hypothesis.
B)
rational information theory hypothesis.
C)
rational expectations hypothesis.
D)
rational abstention hypothesis.
139.
Rational expectations theory asserts that because people have rational expectations, if a
policy of reducing the money supply is used:
A)
it might affect both AD and potential real GDP.
B)
consumers and firms observe that the money supply has fallen, anticipate the
eventual reduction in the price level, and adjust their expectations accordingly.
C)
participants in economic activity react in such a way that shifts in aggregate supply
will reinforce shifts in aggregate demand, and real GDP will shift inevitably into
inflationary or recessionary gaps.
D)
periods of unemployment will be very short.
140.
Proponents of the theory of rational expectations contend that:
A)
people make rational forecasts using all existing information.
B)
business cycles are generally caused by shifts in aggregate demand.
C)
full employment is rarely achieved.
D)
stickiness of prices is the primary cause of inflation.
Page 29
141.
Proponents of rational expectations believe that:
A)
changes in AD cause business cycles.
B)
people will not be surprised by systematic monetary and fiscal policies.
C)
the economy will have to undergo long periods of unemployment during
recessions.
D)
the velocity of money does not exist.
142.
According to the theory of new classical economics, if productivity decreases, the
aggregate supply curve shifts _____, the price level rises, and aggregate output_____.
A)
right; increases
B)
left; remains constant
C)
right; decreases
D)
left; decreases
143.
The real business cycle theorists say that changes in total factor productivity are totally
the result of:
A)
depressions.
B)
shifts in aggregate supply.
C)
shifts in aggregate demand.
D)
uneven technological progress.
144.
According to the real business cycle theory, fluctuations in output are caused by:
A)
fluctuations in the growth rate of total factor productivity.
B)
changes in aggregate demand.
C)
changes in the money supply.
D)
discretionary fiscal policy.
145.
Real business cycle theory argues that:
A)
changes in inventories are the cause of the business cycle.
B)
fluctuations in the rate of growth of total factor productivity cause the business
cycle.
C)
aggregate demand is more important than aggregate supply in identifying the
causes of the business cycle.
D)
changes in the money supply are the primary cause of the business cycle.
Page 30
146.
According to the real business cycle theory, the primary source of fluctuations in real
output is changes in the:
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.
147.
Real business cycle theory suggests the business cycle is caused by:
A)
discretionary monetary policy.
B)
fluctuations in the rate of productivity.
C)
“animal spirits.”
D)
protectionism.
148.
Real business cycle theory suggests that changes in _____ are the primary cause of
business cycles.
A)
aggregate demand
B)
the growth of factor productivity
C)
fiscal policy
D)
monetary policy
149.
If real business cycle theory uses an upward-sloping aggregate _____ curve, aggregate
_____ is _____.
A)
demand; supply; relevant
B)
demand; supply; irrelevant
C)
supply; demand; irrelevant
D)
supply; demand; relevant
150.
Real business cycle theory contends that the:
A)
aggregate supply curve is vertical, and it shifts to the left in a recession.
B)
aggregate demand curve is vertical, and it is the main factor that causes the
business cycle.
C)
aggregate supply curve is horizontal, indicating that business cycles have been
stabilized.
D)
aggregate demand curve is downward sloping, which shows that productivity
growth is slowing down, causing the business cycle.
Page 31
151.
The economic view that reducing tax rates will increase the incentives to work and
invest and will ensure a high growth rate of the potential output is known as _____
economics.
A)
supply-side
B)
demand-side
C)
new classical
D)
new Keynesian
152.
According to supply-side economics, tax cuts:
A)
cause dangerous budget deficits.
B)
unfairly sacrifice equity to efficiency.
C)
increase incentives to work and save and cause increases in potential output.
D)
increase output by directly increasing aggregate demand.
153.
Which president was a proponent of supply-side economics?
A)
Herbert Hoover
B)
Franklin Roosevelt
C)
Jimmy Carter
D)
Ronald Reagan
154.
In the 1970s and first half of the 1980s, the U.S. economy had _____ inflation and
_____ unemployment.
A)
high; high
B)
high; low
C)
low; high
D)
low; low
155.
The period of relative calm in the economy between 1985 and 2007 is called the:
A)
Great Depression
B)
Great Moderation.
C)
Great Recession.
D)
Great Modernization.
156.
The slump that followed the 2008 financial crisis is called the:
A)
Great Depression
B)
Great Moderation.
C)
Great Recession.
D)
Great Modernization.
Page 32
157.
The school of thought that monetary policy should be the main tool of stabilization
policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on
policy imposed by the natural rate of unemployment and the political business cycle is:
A)
classical macroeconomics.
B)
Keynesian macroeconomics.
C)
monetarism.
D)
the Great Moderation consensus.
158.
According to the Great Moderation consensus:
I. monetary policy should be the main stabilization tool.
II. the natural rate of unemployment doesn’t actually exist.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
159.
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.
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
160.
The Great Moderation consensus regarding the use of monetary policy to fight
recessions is that expansionary monetary policy:
A)
is ineffective because the public expects it.
B)
is harmful because it only increases the aggregate price level.
C)
has little impact on aggregate demand because of liquidity traps.
D)
can be used to increase aggregate demand but at the cost of higher aggregate
prices.
161.
Which school of thought believes that expansionary monetary policy is effective in
fighting recessions?
I. classical macroeconomics
II. Great Moderation consensus
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
Page 33
162.
Which school of thought believes that expansionary monetary policy affects only prices,
not output?
I. classical macroeconomics
II. Great Moderation consensus
A)
I only
B)
II only
C)
I and II
D)
Neither I nor II
163.
Which school of thought believes that expansionary monetary policy has very little or
no effect on output?
I. Keynesian macroeconomics
II. Great Moderation consensus
A)
I only
B)
II only
C)
I and II
D)
neither I nor II
164.
Which school of thought believes that fiscal policy should have the central role in
fighting recessions?
I. classical macroeconomics
II. Keynesian macroeconomics
III. monetarism
A)
I only
B)
II only
C)
III only
D)
I, II, and III
165.
Most economists today believe that:
A)
the Federal Reserve should be abolished.
B)
fiscal policy can decrease the unemployment rate below the natural rate of
unemployment.
C)
the federal government should always balance its budget.
D)
the federal government should not seek to balance the budget annually, but let it
function as an automatic stabilizer.
166.
Most economists now agree that:
A)
the government should seek to balance its budget.
B)
fiscal policy can shift aggregate demand.
C)
fiscal policy can change the natural rate of unemployment.
D)
fiscal policy should be conducted by the Federal Reserve.
Page 34
167.
What is the consensus among most economists today with respect to the management of
unemployment?
A)
Government can’t do anything about it.
B)
Expansionary policy can be used to achieve permanently low unemployment.
C)
Unemployment cannot be kept below the natural rate.
D)
Unemployment cannot be kept anywhere near the natural rate.
168.
The Great Moderation consensus regarding the use of monetary or fiscal policy to
reduce unemployment in the long run is that:
A)
unemployment can be constantly decreased as long as expectations of inflation are
kept low.
B)
the natural rate of unemployment limits what monetary and fiscal policy can
accomplish.
C)
the concept of the nonaccelerating inflation rate of unemployment, or NAIRU, was
a mistake.
D)
the only effective policy is to maintain a constant growth rate of the money supply.
169.
Nearly all economists agree that fiscal policy _____ keep the economy _____.
A)
cannot; below the natural rate of unemployment
B)
cannot; above the natural rate of unemployment
C)
can; at the natural rate of unemployment
D)
can; on the production possibility curve
170.
Which statement does NOT represent the broad consensus among macroeconomists?
A)
Monetary policy should play the main role in stabilization policy.
B)
The central bank should be independent, insulated from political pressures, to
avoid a political business cycle.
C)
Discretionary fiscal policy should be used sparingly because of policy lags and the
risks of the political business cycle.
D)
Discretionary fiscal policy can lower the natural rate of unemployment.
171.
Most economists believe that discretionary fiscal policy should be used sparingly
because of the risk of:
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.
Page 35
172.
The Great Moderation consensus among macroeconomists is that fiscal policy should be
used sparingly because:
A)
it cannot be effective.
B)
of policy lags.
C)
it always destabilizes the economy.
D)
of the risk of government waste.
173.
The Great Moderation consensus among macroeconomists is that fiscal policy should be
used sparingly because:
A)
monetary policy is always more effective.
B)
it always requires higher taxes.
C)
lags in adjusting to fiscal policy can make it counterproductive.
D)
of the risk of government waste.
174.
Discretionary fiscal policy may be counterproductive because:
A)
the countercyclical nature of such policies sometimes reduces their effectiveness.
B)
in the short run, only monetary policy is effective.
C)
increases in the government budget deficit affect economic growth in the long run.
D)
the various lags in fiscal policy mean that it may take effect when the economy has
already recovered.
175.
According to the Great Moderation consensus today, an unemployment rate of 6% when
the natural rate is 4.5% should be countered by:
A)
decreases in government spending.
B)
increases in tax rates.
C)
increases in the rate of growth of the money supply.
D)
decreases in the rate of growth of the money supply.
176.
Which statement does NOT describe the Great Moderation consensus among
macroeconomists?
A)
Monetary policy should play the main role in stabilization policy.
B)
The central bank should be independent of politics.
C)
Discretionary fiscal policy should be used sparingly.
D)
Monetary policy is the only way to get out of the liquidity trap.
177.
Nearly all economists agree that central banks should:
A)
be subject to political control.
B)
be elected by voters.
C)
be independent.
D)
play a minor role in the economy.
Page 36
178.
Which statement is a point of the Great Moderation consensus?
I. Monetary policy should be the main stabilization policy.
II. The central bank should be independent of political influence.
III. Discretionary fiscal policy should be used sparingly.
A)
I only
B)
II only
C)
III only
D)
I, II, and III
179.
Which statement is TRUE of the state of modern macroeconomics?
A)
There is much more consensus than disagreement among economists.
B)
Inflation targeting and asset price management are incompatible duties for a central
bank.
C)
Congress indirectly controls the Fed and monetary policy through its annual budget
allocations.
D)
The Great Recession heightened the areas of disagreement among
macroeconomists over key policy questions.
180.
A very low rate of inflation during a recession can lead to:
A)
a liquidity trap, which makes monetary policy ineffective.
B)
a liquidity trap, which makes monetary policy effective.
C)
government budget deficits.
D)
government budget surpluses.
181.
If the Fed funds rate is only 1%, the economy is dangerously close to:
A)
an inflationary spiral.
B)
a liquidity trap.
C)
very high unemployment.
D)
another recession.
182.
The Great Moderation consensus was shattered by:
A)
the Great Recession.
B)
the Great Depression.
C)
World War II.
D)
the Panic of 1907.
Page 37
183.
The Great Moderation consensus agreement that a decrease in the interest rate was the
best policy for fighting a recession was ineffective in the Great Recession because:
A)
the Fed bought government securities, but interest rates did not fall.
B)
interest rates were already close to zero.
C)
financial institutions were engaging in maturity transformation.
D)
Congress increased taxes.
184.
Reduction of interest rates was ineffective in fighting the Great Recession because:
A)
Congress decreased government spending to balance the budget.
B)
crowding-out occurred.
C)
the economy was dangerously close to a liquidity trap.
D)
businesses and consumers borrowed and spent so much that it caused an
inflationary gap.
185.
A policy of fiscal stimulus involves _____ taxes and _____ government spending.
A)
increasing; decreasing
B)
increasing; increasing
C)
decreasing; decreasing
D)
decreasing; increasing
186.
Which argument was made in favor of using discretionary fiscal policy in fighting the
Great Recession?
A)
Monetary policy could not be effective, since interest rates were near zero.
B)
If taxes were increased, the budget could be balanced.
C)
If government spending decreased, the budget surplus would increase.
D)
The lags associated with monetary policy would be destabilizing.
187.
Which argument was a justification for breaking with the normal presumption against
using discretionary fiscal policy during the Great Recession?
A)
Monetary policy would not be effective because interest rates were so high.
B)
Crowding-out was not likely to be a problem in a very depressed economy with
interest rates near zero.
C)
The economy was so depressed that a political business cycle was not likely to be a
problem.
D)
Ricardian equivalence was likely if monetary policy was used alone.
Page 38
188.
During the Great Recession, policy makers were not as worried as usual about the lags
associated with discretionary fiscal policy because:
A)
the severity of the recession led Congress to pledge to pass a bipartisan spending
package immediately.
B)
businesses had pledged to respond quickly to the lower interest rates.
C)
the economy was likely to be depressed for a long time, so the lags were not likely
to be as destabilizing as usual.
D)
the financial sector of the economy was not affected by the recession and was
ready to make loans to consumers and businesses.
189.
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:
A)
debt overhang.
B)
the natural rate hypothesis.
C)
supply-side economics.
D)
Ricardian equivalence.
190.
Cutting government spending to increase private-sector confidence, leading to increases
in output and employment, is called:
A)
expansionary austerity.
B)
expansionary monetary policy.
C)
Ricardian equivalence.
D)
new Keynesian economics.
191.
Despite of the budget deficits that resulted from the fiscal stimulus of 2009,:
A)
the public debt decreased.
B)
interest rates remained very low.
C)
interest rates increased to record high levels.
D)
crowding-out occurred.
192.
The monetary policy in which the Fed purchased assets other than short-term
government securities is called:
A)
maturity transformation.
B)
shadow banking.
C)
quantitative easing.
D)
debt overhang.
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193.
When the Fed pursues a policy of quantitative easing, it:
A)
is trying to increase interest rates.
B)
is trying to decrease inflation.
C)
purchases short-term government securities.
D)
purchases long-term debt whose interest rates are significantly above zero.
194.
One argument in favor of quantitative easing is that:
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.
195.
Opponents of quantitative easing argued that the _____ monetary policy would cause
_____.
A)
contractionary; unemployment
B)
expansionary; inflation
C)
contractionary; inflation
D)
expansionary; unemployment
196.
The claim that reducing deficits in an economy with high rates of unemployment will
help even in the short run by improving confidence is called:
A)
quantitative easing.
B)
fiscal stimulus.
C)
expansionary austerity.
D)
a credit crunch.
197.
Unlike the majority of countries in the world, ______experienced interest rates close to
zero since the 1990s.
A)
Japan
B)
China
C)
the United States
D)
Latvia
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198.
Since 2012, Japan has _____ government spending and _____ monetary expansion,
resulting in ____ growth.
A)
cut; increased; strong
B)
increased; increased; very mild
C)
cut; decreased; record-setting
D)
increased; decreased; no
199.
Which statement do economists broadly consider to be TRUE?
A)
A monetary rule can increase real GDP.
B)
Discretionary fiscal policy is typically more effective than monetary policy in
fighting recessions.
C)
A nation’s central bank should be managed by elected officials.
D)
Discretionary monetary and fiscal policy cannot affect the long-run level of
unemployment.
200.
Which statement is broadly agreed upon by modern macroeconomists?
A)
Monetary and fiscal policy can both be effective at decreasing unemployment in
the short run but not in the long run.
B)
Discretionary fiscal policy is typically an effective remedy for a recessionary gap
except in special circumstances.
C)
The central bank should set a specific target rate of inflation.
D)
A monetary rule should be set by the central bank.
201.
_____ 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.
A)
Classical macroeconomics
B)
Keynesian economics
C)
Rational expectations theory
D)
Monetarism
202.
_____ is the MOST likely to advocate the use of fiscal policy in fighting recessions.
A)
Classical macroeconomics
B)
Keynesian economics
C)
Rational expectations theory
D)
Monetarism