Question 1

Figure 17-1 2 to SRAS1, resulting in a short run equilibrium at point k. B)  The short-run aggregate supply curve shifted right, from SRAS1 to SRAS2, resulting in a short run equilibrium at point n. C)  The short-run aggregate supply curve shifted right, from SRAS1 to SRAS2, resulting in a short run equilibrium at point j. D)  The short-run aggregate supply curve shifted left, from SRAS2 to SRAS1, resulting in a short run equilibrium at point m. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply, thrusting the economy into a recessionary gap. Nominal wages plunged roughly 20% between 1929 and 1933. How did the economy respond to the falling wages?

Accepted Answer

A)   The short-run aggregate supply curve shifted left, from SRAS2 to SRAS1, resulting in a short run equilibrium at point k.
B)   The short-run aggregate supply curve shifted right, from SRAS1 to SRAS2, resulting in a short run equilibrium at point n.
C)   The short-run aggregate supply curve shifted right, from SRAS1 to SRAS2, resulting in a short run equilibrium at point j.
D)   The short-run aggregate supply curve shifted left, from SRAS2 to SRAS1, resulting in a short run equilibrium at point m.

Question 2

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Accepted Answer

A)   Keynesians favor the use of fiscal policy to bring the economy back to its potential output while monetarists favor the use of monetary policy to bring the economy back to its potential output.
B)   Keynesians favor active policy intervention to bring the economy back to its potential output while monetarists argue that the uncertain nature of lags renders policy interventionDestabilizing.
C)   Keynesians argue that with its shorter and more predictable policy lags, fiscal policy is more effective that monetary policy in bringing the economy back to its potential output, whileMonetarists argue that monetary policy lags are much shorter and more predictable than fiscal policy lags and therefore more effective in bringing the economy back to its potentialOutput.
D)   While both schools favor the use of intervention policies, Keynesians argue that such policies are more effective at eliminating recessionary gaps while Monetarists contend that they areMore effective at eliminating inflationary gaps.

Question 3

Which of the following statements is true about Keynes' macroeconomic theory?

Accepted Answer

A)   Keynes agreed that the notion that the economy would achieve the potential level of output in the long run is crucial to explaining prolonged recessions.
B)   Keynes dismissed the notion that the economy would achieve full employment in the long run as irrelevant in explaining prolonged recessions.
C)   Keynes stressed the notion that the economy would achieve price stability in the long run only if expansionary fiscal and monetary policies were used to address recessions.
D)   Keynes argued that the economy would achieve full employment in the long run because of wage and price flexibility.

Question 4

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Accepted Answer

A)   investment
B)   consumption
C)   government purchases
D)   transfer payments

Question 5

Figure 17-2 2. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply? A)  Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2. Consumers respond by increasing their demand for output and firms in turn increase their supply to meet the rising demand. The economy moves back to point (1) . B)  Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2. To prevent further reductions in the price level, firms increase output at the same time as consumers increase aggregate demand. The economy moves to point (4) , bypassing point (3) . C)  Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P3. They adjust their expectations accordingly. Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand falls, bypassing point (2) . D)  Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P4. They adjust their expectations accordingly. Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand rises, moving the economy to point (4) . " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2. The economy is initially in equilibrium at point (1) . Now suppose a reduction in the money supply causes aggregate demand to fall to AD2. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

Accepted Answer

A)   Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2. Consumers respond by increasing their demand for output and firms in turn increase their supply to meet the rising demand. The economy moves back to point (1) .
B)   Consumers and firms observe that the money supply has fallen and that the price level has fallen to P2. To prevent further reductions in the price level, firms increase output at the same time as consumers increase aggregate demand. The economy moves to point (4) , bypassing point (3) .
C)   Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P3. They adjust their expectations accordingly. Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand falls, bypassing point (2) .
D)   Consumers and firms observe that the money supply has fallen and anticipate the eventual reduction in the price level to P4. They adjust their expectations accordingly. Workers agree to lower nominal wages, and the short-run aggregate supply curve shifts to SRAS2 at the same time as aggregate demand rises, moving the economy to point (4) .

Question 6

Which of the following statements is true about the Great Depression?

Accepted Answer

A)   The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929.
B)   The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment.
C)   The fall in aggregate demand at the start of the Great Depression began with the collapse in investment.
D)   The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods.

Question 7

During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?

Accepted Answer

A)   Conduct an open market purchase
B)   Conduct an open market sale
C)   Raise the reserve requirement ratio
D)   Raise the discount rate

Question 8

Keynesian economics was mostly concerned with the short run.

Accepted Answer

A) True 
 B)False

Question 9

According to Milton Friedman, any divergence in unemployment from its natural rate is
Temporary because

Accepted Answer

A)   anticipated price changes affect nominal wages in the short run but workers will rectify this over time.
B)   unanticipated price changes affect real wages in the short run but workers will rectify this over time.
C)   anticipated price changes affect real wages in the short run but workers will rectify this over time.
D)   unanticipated price changes create inflation which is addressed by policymakers over time.

Question 10

Compare and contrast the classical and Keynesian views of aggregate demand and
aggregate supply.

Accepted Answer

The classical and Keynesian views of agg...

Question 11

The rational expectations hypothesis assumes that individuals form expectations about
the future based on the information available to them and that they act on those
expectations.

Accepted Answer

A) True 
 B)False

Question 12

Early classical macroeconomics was based largely on the foundation of

Accepted Answer

A)   flexible wages and prices.
B)   persistent unemployment.
C)   government intervention in the market.
D)   Adam Smith's model of imperfectly competitive markets.

Question 13

The theory that argues most strongly for countercyclical policy activism is

Accepted Answer

A)   Keynesian economics.
B)   classical economics.
C)   monetarism.
D)   rational expectations theory.

Question 14

Figure 17-1 2 to AD1.  B)  AD1 to AD2 . C)  SRAS2 to SRAS1.  D)  YP to Yk. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1. The Great Depression began with a shift of

Accepted Answer

A)   AD2 to AD1. 
B)   AD1 to AD2 .
C)   SRAS2 to SRAS1. 
D)   YP to Yk.

Question 15

In the 1970s, the U.S. economy experienced both inflation and unemployment. This led economists to recognize that
I. stabilization was a much more difficult task than many economists anticipated.
II. the Keynesian doctrine correctly asserts that reducing inflation and unemployment can be addressed by fiscal policies.
III. shifts in aggregate demand could frustrate policymaking efforts whereas shifts in the short-run aggregate supply were more easily addressed.

Accepted Answer

A)   I only
B)   II only
C)   I and III only
D)   III only

Question 16

Writing in 1752, David Hume's essay, "Of Money,"

Accepted Answer

A)   showed that changes in the money supply were unrelated to short-run fluctuations in output.
B)   suggested that an increase in the money supply would be favorable to industry in the long-run.
C)   echoed John Maynard Keynes' view that sticky prices would lead to short-run deviations of output from the level of potential real GDP.
D)   was unable to unravel the nature and role of money in the economy because he ignored sticky prices.

Question 17

The events of the 1980s and early 1990s appear to have been consistent with the
hypotheses of either the monetarist or new classical schools.

Accepted Answer

A) True 
 B)False

Question 18

A fundamental feature of early classical macroeconomics is that

Accepted Answer

A)   aggregate demand and aggregate income are usually unequal.
B)   prices of inputs and outputs are relatively rigid.
C)   the economy's level of employment can remain substantially below its natural level over a prolonged period of time.
D)   the economy can achieve full employment on its own, though there could be temporary periods in which employment falls below the natural level.

Question 19

Economists who subscribe to the rational expectations hypothesis

Accepted Answer

A)   base their belief on the economic assumption that people behave in ways that maximize their utility.
B)   believe that governments can influence macroeconomic outcomes better than the private sector.
C)   argue that discretionary monetary and fiscal policy can control fluctuations in economic activity adequately.
D)   say that people are constantly revising their expectations about future prices based on what transpired in the past and therefore over time, fluctuations in economic activity will cease to occur.

Question 20

The classical school focused on the long-run forces that determined an economy's
potential level of output.

Accepted Answer

A) True 
 B)False

Exam 32: Macroeconomic Policy Around the World

Figure 17-1 -Refer to Figure 17-1. The Great Depression began with a shift of

Correct Answer
verified

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Correct Answer
verified

Which of the following statements is true about the Great Depression?

Correct Answer
verified

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

Correct Answer
verified

A fundamental feature of early classical macroeconomics is that

Correct Answer
verified

During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?

Correct Answer
verified

Compare and contrast the classical and Keynesian views of aggregate demand and aggregate supply.

Correct Answer
Answered by ExamLex AI
The classical and Keynesian views of agg...
View Answer

Economists who subscribe to the rational expectations hypothesis

Correct Answer
verified

The rational expectations hypothesis assumes that individuals form expectations about the future based on the information available to them and that they act on those expectations.

Correct Answer
verified

Writing in 1752, David Hume's essay, "Of Money,"

Correct Answer
verified

Early classical macroeconomics was based largely on the foundation of

Correct Answer
verified

Which of the following statements is true about Keynes' macroeconomic theory?

Correct Answer
verified

Correct Answer
verified

The theory that argues most strongly for countercyclical policy activism is

Correct Answer
verified

Keynesian economics was mostly concerned with the short run.

Correct Answer
verified

Figure 17-2 -Refer to Figure 17-2. The economy is initially in equilibrium at point (1) . Now suppose a reduction in the money supply causes aggregate demand to fall to AD₂. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

Correct Answer
verified

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply, thrusting the economy into a recessionary gap. Nominal wages plunged roughly 20% between 1929 and 1933. How did the economy respond to the falling wages?

Correct Answer
verified

The events of the 1980s and early 1990s appear to have been consistent with the hypotheses of either the monetarist or new classical schools.

Correct Answer
verified

The classical school focused on the long-run forces that determined an economy's potential level of output.

Correct Answer
verified

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Correct Answer
verified

Exam 32: Macroeconomic Policy Around the World

Figure 17-1 -Refer to Figure 17-1. The Great Depression began with a shift of

Correct AnswerverifiedShow Answer

Which component of aggregate demand plunged sharply at the start of the Great Depression?

Correct AnswerverifiedShow Answer

Which of the following statements is true about the Great Depression?

Correct AnswerverifiedShow Answer

According to Milton Friedman, any divergence in unemployment from its natural rate is Temporary because

Correct AnswerverifiedShow Answer

A fundamental feature of early classical macroeconomics is that

Correct AnswerverifiedShow Answer

During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?

Correct AnswerverifiedShow Answer

Compare and contrast the classical and Keynesian views of aggregate demand and aggregate supply.

Correct AnswerAnswered by ExamLex AIThe classical and Keynesian views of agg...View AnswerShow Answer

Economists who subscribe to the rational expectations hypothesis

Correct AnswerverifiedShow Answer

The rational expectations hypothesis assumes that individuals form expectations about the future based on the information available to them and that they act on those expectations.

Correct AnswerverifiedShow Answer

Writing in 1752, David Hume's essay, "Of Money,"

Correct AnswerverifiedShow Answer

Early classical macroeconomics was based largely on the foundation of

Correct AnswerverifiedShow Answer

Which of the following statements is true about Keynes' macroeconomic theory?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The theory that argues most strongly for countercyclical policy activism is

Correct AnswerverifiedShow Answer

Keynesian economics was mostly concerned with the short run.

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2. The economy is initially in equilibrium at point (1) . Now suppose a reduction in the money supply causes aggregate demand to fall to AD2. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

Correct AnswerverifiedShow Answer

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply, thrusting the economy into a recessionary gap. Nominal wages plunged roughly 20% between 1929 and 1933. How did the economy respond to the falling wages?

Correct AnswerverifiedShow Answer

The events of the 1980s and early 1990s appear to have been consistent with the hypotheses of either the monetarist or new classical schools.

Correct AnswerverifiedShow Answer

The classical school focused on the long-run forces that determined an economy's potential level of output.

Correct AnswerverifiedShow Answer

Which of the following is true about Keynesians and monetarists with regards to policy intervention?

Correct AnswerverifiedShow Answer

Correct Answer
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The classical and Keynesian views of agg...
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Figure 17-2 -Refer to Figure 17-2. The economy is initially in equilibrium at point (1) . Now suppose a reduction in the money supply causes aggregate demand to fall to AD₂. Which of the following explains the new classical view regarding economic agents' response to the decrease in money supply?

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