Page 41
203.
Nearly all economists agree that increases in money supply can _____ aggregate _____.
A)
increase; supply
B)
decrease; supply
C)
decrease; demand
D)
increase; demand
204.
Nearly all economists agree that decreases in money supply can _____ aggregate _____.
A)
increase; supply
B)
decrease; supply
C)
decrease; demand
D)
increase; demand
205.
Nearly all economists agree that increases in government spending can _____ aggregate
_____.
A)
increase; supply
B)
decrease; supply
C)
decrease; demand
D)
increase; demand
206.
Nearly all economists agree that expansionary fiscal policy can _____ aggregate _____.
A)
increase; supply
B)
decrease; supply
C)
increase; demand
D)
decrease; demand
207.
The belief that expansionary monetary policy is NOT at all helpful to the economy in
fighting recessions is attributed to:
A)
classical macroeconomics.
B)
Keynesian macroeconomics.
C)
monetarism.
D)
Great Moderation consensus.
208.
Using increased government spending and tax cuts to fight a recession is consistent with
_____ economics.
A)
classical
B)
classical and monetarist
C)
classical and Keynesian
D)
Keynesian and Great Moderation consensus
Page 42
209.
The belief that neither monetary nor fiscal policy can reduce unemployment is
consistent with _____ economics.
A)
Keynesian
B)
classical
C)
rational expectations
D)
Great Moderation consensus
210.
If a contraction in aggregate demand causes a recession, the Great Moderation
consensus on macroeconomics suggests that:
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.
211.
To close an inflationary gap, the Great Moderation consensus on macroeconomics
suggests that:
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.
212.
The Great Moderation consensus about macroeconomic policy is that monetary policy:
A)
is effective.
B)
can reduce the unemployment rate below the natural rate.
C)
makes the economy unstable.
D)
should follow a policy rule.
213.
Which view of the macro economy holds that since the long-run growth of real GDP is
3%, the money supply should grow at 3%?
A)
classical
B)
Keynesian
C)
monetarist
D)
Great Moderation consensus
Page 43
214.
Which view of macroeconomics holds that a decrease in the money supply will reduce
inflationary pressure?
A)
classical
B)
Keynesian
C)
monetarist
D)
rational expectations
215.
The recommendation that a decrease in taxes will alleviate a recessionary gap is
consistent with _____ macroeconomics.
A)
classical
B)
Keynesian
C)
monetarist
D)
Great Moderation consensus
216.
The recommendation that the government should avoid deficit spending because of the
crowding-out effect on investment spending is consistent with _____ macroeconomics.
A)
classical
B)
Keynesian
C)
monetarist
D)
Great Moderation consensus
217.
The recommendation to use monetary policy to stabilize the economy and use fiscal
policy only when monetary policy is ineffective is consistent with _____
macroeconomics.
A)
classical
B)
Keynesian
C)
monetarist
D)
Great Moderation consensus
218.
The Great Moderation consensus about macroeconomic policy is that:
A)
only monetary policy works against recessions, but fiscal policy is effective only in
the long run.
B)
expansionary monetary and fiscal policies can both reduce unemployment in the
long run.
C)
expansionary monetary and fiscal policies are both effective in the short run but not
in the long run.
D)
discretionary monetary and fiscal policies are effective in the short run and in the
long run.
Page 44
219.
The Great Moderation consensus is that:
A)
fiscal policy should play the main role in stabilization policy.
B)
monetary policy should play the main role in stabilization policy.
C)
automatic stabilizers should be the only type of policy used.
D)
government budgets should always be balanced.
220.
According to classical economists, the short-run aggregate supply curve is _____, while
according to Keynesian economists, the short-run aggregate supply curve is _____.
A)
vertical; upward sloping
B)
downward sloping; vertical
C)
vertical; vertical
D)
upward sloping; horizontal
221.
_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate
price level, ignoring any _____ effects on aggregate output.
A)
Keynesian; long-run; monetary; short-run
B)
Classical; short-run; monetary; long-run
C)
Classical; long-run; monetary; short-run
D)
Keynesian; long-run; fiscal; short-run
222.
According to classical economists, the aggregate supply curve is _____, but according
to Keynes, it is _____.
A)
vertical in the short run; upward sloping in the short run
B)
upward sloping in the short run; vertical in the short run
C)
upward sloping in the short run; horizontal in the short run
D)
downward sloping in the long run; always vertical
223.
Pablo believed that short-run changes in aggregate demand affected aggregate output as
well as the price level. He believed that there was a role for monetary policy in
managing the economy, but he advocated a simple monetary rule that would increase
the money supply at a constant rate to grow the economy. Pablo was BEST described as
a:
A)
Keynesian.
B)
new classical economist.
C)
supply-sider.
D)
monetarist.
Page 45
224.
Which group of economists disagrees with discretionary monetary policy in favor of a
monetary rule that prescribes a slow increase in the money supply?
A)
Keynesians
B)
monetarists
C)
supply-side economists
D)
classical economists
225.
Which theory is consistent with the notion that the short-run aggregate supply curve
may be vertical after all?
A)
Keynesian theory
B)
new classical economics
C)
new Keynesian theory
D)
real business cycle theory
226.
“A consistent countercyclical policy has no effect on employment and output, since
individuals will recognize those policies as systematic and will anticipate them
correctly.” This statement is most closely associated with _____ theory.
A)
classical
B)
Keynesian
C)
rational expectations
D)
monetarist
227.
The macroeconomic theory stating that because workers and firms take all information
into account, only unexpected changes in the money supply affect aggregate output is
called _____ theory.
A)
real business cycle
B)
rational expectations
C)
new classical
D)
supply-side
228.
Joseph believes that changes in the business cycle can be attributed to shifts in the
vertical aggregate supply curve. These shifts are caused by faster or slower increases in
economic productivity. Joseph is best described as supporting the _____ theory.
A)
rational expectations
B)
supply-side
C)
real business cycle
D)
new Keynesian
Page 46
229.
Nancy believes that the best way to grow the economy is through tax cuts to increase the
incentive to work and invest. Though these tax cuts might initially increase the budget
deficit, Nancy is convinced that the economic growth that results will actually increase
government tax revenue. Nancy is BEST described as a:
A)
monetarist.
B)
classical economist.
C)
new Keynesian.
D)
supply-sider.
230.
Classical economists focused on short-run effects of monetary policy.
A)
True
B)
False
231.
Classical macroeconomists focused on the long-run effects of monetary policy on the
aggregate price level and argued that it had no short-run or long-run effects on aggregate
output.
A)
True
B)
False
232.
Classical economics is based primarily on the works of John Maynard Keynes.
A)
True
B)
False
233.
If the unemployment rate rose, a classical economist would counsel the government to
do nothing.
A)
True
B)
False
234.
The experience of the Great Depression led to the widespread acceptance of classical
economics.
A)
True
B)
False
235.
Keynes emphasized short-run effects of aggregate demand on aggregate output.
A)
True
B)
False
Page 47
236.
According to Keynes, changes in business confidence are often responsible for business
cycles.
A)
True
B)
False
237.
Keynesian economics was mostly concerned with the short run.
A)
True
B)
False
238.
Keynesian theory argued that monetary policy could be very effective during a
depression.
A)
True
B)
False
239.
Monetarists argue that discretionary monetary policy does more harm than good.
A)
True
B)
False
240.
Monetarism asserts that GDP will grow steadily if the money supply grows steadily.
A)
True
B)
False
241.
A monetarist rule would be to vary the money growth rate between set limits, such as
3% to 5% annual growth.
A)
True
B)
False
242.
Most economists favor discretionary monetary policy because the velocity of money has
been very stable since the 1980s.
A)
True
B)
False
243.
The natural rate hypothesis suggests there are limits to what macroeconomic policy can
achieve.
A)
True
B)
False
Page 48
244.
According to the natural rate hypothesis, attempts to keep unemployment below the
natural rate will lead to increasing inflation.
A)
True
B)
False
245.
Supply-side economics is the belief that tax cuts can be used to stimulate long-run
economic growth.
A)
True
B)
False
246.
Some economists believe that fluctuations in the growth rate of total factor productivity
cause business cycles.
A)
True
B)
False
247.
In the 1970s and first half of the 1980s, the U.S. economy had high inflation and high
unemployment.
A)
True
B)
False
248.
In the 1970s and first half of the 1980s, the U.S. economy had low inflation and low
unemployment.
A)
True
B)
False
249.
The period of relative calm in the economy between 1985 and 2007 is called the Great
Moderation.
A)
True
B)
False
250.
The slump that followed the 2008 financial crisis is called the Great Modernization.
A)
True
B)
False
251.
The Great Moderation consensus is the school of thought that monetary policy should
be the main tool of stabilization policy and is skeptical about the use of fiscal policy.
A)
True
B)
False
Page 49
252.
According to the Great Moderation consensus, fiscal policy should be the main
stabilization tool.
A)
True
B)
False
253.
According to the Great Moderation consensus, the effectiveness of economic policy is
limited by the political business cycle.
A)
True
B)
False
254.
Economists who agree with the Great Moderation consensus believe that monetary
policy can keep unemployment below the natural rate.
A)
True
B)
False
255.
The Great Moderation consensus includes the belief that expansionary monetary policy
is effective in fighting recessions.
A)
True
B)
False
256.
The Great Moderation consensus is that expansionary monetary policy affects only
prices, not output.
A)
True
B)
False
257.
The Keynesian school of thought is that expansionary monetary policy has very little or
no effect on output.
A)
True
B)
False
258.
The classical macroeconomists believed that fiscal policy was even less effective than
monetary policy.
A)
True
B)
False
Page 50
259.
Monetarists argued that fiscal policy was ineffective if the money supply increased.
A)
True
B)
False
260.
Most economists believe that the budget should not be balanced annually but should be
allowed to function as an automatic stabilizer.
A)
True
B)
False
261.
Classical macroeconomists believed that government could reduce the unemployment
rate to a permanently low rate.
A)
True
B)
False
262.
Some Keynesian economists believed that at the cost of some inflation, the government
could reduce the unemployment rate to a permanently low rate.
A)
True
B)
False
263.
Most economists today believe that the appropriate monetary and/or fiscal policy can
permanently reduce the unemployment rate below the natural rate.
A)
True
B)
False
264.
Most economists today believe that effective monetary and fiscal policy can limit the
fluctuations of the actual unemployment rate around the natural rate, but they are unable
to keep unemployment permanently below the natural rate.
A)
True
B)
False
265.
Monetary and fiscal policy can be used to reduce the natural rate of unemployment.
A)
True
B)
False
266.
Discretionary fiscal policy may destabilize the economy because of lags in
implementing policy and lags in the effect of fiscal policy on the economy.
A)
True
B)
False
Page 51
267.
The Great Moderation consensus is that fiscal policy has no effect on aggregate demand.
A)
True
B)
False
268.
The Great Moderation consensus is that discretionary fiscal policy can be destabilizing
because of lags in adjusting policy.
A)
True
B)
False
269.
The Great Moderation consensus is that discretionary fiscal policy can be destabilizing
because of the political business cycle.
A)
True
B)
False
270.
Classical macroeconomists believed that monetary policy should be used to fight
recessions.
A)
True
B)
False
271.
Keynesian economists didn’t oppose monetary policy, but they felt that it was
ineffective in fighting a recession.
A)
True
B)
False
272.
The Great Moderation consensus is that the policy makers of the central bank should be
elected so that they are responsible to the voters.
A)
True
B)
False
273.
The Great Moderation consensus includes the idea that the central bank should be
independent of politics.
A)
True
B)
False
Page 52
274.
Most economists today agree that the Federal Reserve should remain independent so
that it is insulated from political pressure.
A)
True
B)
False
275.
Economists today generally believe that fiscal policy should be the primary tool for
stabilizing the economy.
A)
True
B)
False
276.
Economists today generally believe that monetary policy can stabilize the economy but
not reduce unemployment below its natural rate.
A)
True
B)
False
277.
When interest rates are very high, the economy is in a liquidity trap, and monetary
policy may be ineffective in fighting a recession.
A)
True
B)
False
278.
The policies that seemed to be effective during the Great Moderation seemed to be
inadequate to fight the Great Recession.
A)
True
B)
False
279.
A stimulus is an expansionary fiscal policy.
A)
True
B)
False
280.
Many economists argued against using discretionary fiscal policy during the Great
Recession because interest rates were very low and fiscal policy is ineffective when
interest rates are near zero.
A)
True
B)
False
Page 53
281.
Many economists favored using discretionary fiscal policy during the Great Recession
because monetary policy could not be used when interest rates were near zero.
A)
True
B)
False
282.
A policy of expansionary austerity involves increasing government spending to increase
private-sector confidence, leading to an increase in output and employment.
A)
True
B)
False
283.
The Ricardian equivalence argument says that households and businesses view any
increase in government spending as a sign that tax burdens will increase in the future,
which will cause a decrease in private spending in anticipation of higher future taxes.
A)
True
B)
False
284.
Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.
A)
True
B)
False
285.
The purpose of quantitative easing is to drive down long-term interest rates, which are
usually more important for private investment spending than short-term rates.
A)
True
B)
False
286.
Prior to the 1930s, classical economics was the predominant theory about the behavior
of the aggregate price level, aggregate output, and the appropriate role of monetary
policy. Describe how classical economists believed the economy would be affected by
an increase in the money supply.
287.
Why did the adoption of Keynesian economics come out of the Great Depression?
288.
Explain the rational expectations theory and how it predicts the usefulness of fiscal and
monetary policy.