question
an increase; an increase
answer
Suppose the economy is producing at potential GDP. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant.
an increase; an increase
a decrease; a decrease
no change; an increase
no change; a decrease
an increase; an increase
a decrease; a decrease
no change; an increase
no change; a decrease
question
the SRAS curve rightward but leaves the LRAS curve unchanged.
answer
A fall in the money wage rate (or other input prices) shifts
both the SRAS and LRAS curves rightward.
both the SRAS and LRAS curves leftward.
the LRAS curve rightward but leaves the SRAS curve unchanged.
the SRAS curve rightward but leaves the LRAS curve unchanged.
both the SRAS and LRAS curves rightward.
both the SRAS and LRAS curves leftward.
the LRAS curve rightward but leaves the SRAS curve unchanged.
the SRAS curve rightward but leaves the LRAS curve unchanged.
question
final goods and services demanded at different inflation rates.
answer
The aggregate demand curve is the total quantity of an economy's
final goods and services demanded at a particular inflation rate.
intermediate goods demanded at a particular inflation rate.
final goods and services demanded at different inflation rates.
intermediate goods demanded at different inflation rates.
final goods and services demanded at a particular inflation rate.
intermediate goods demanded at a particular inflation rate.
final goods and services demanded at different inflation rates.
intermediate goods demanded at different inflation rates.
question
producers.
answer
Aggregate supply describes the behavior of
foreign buyers.
government.
households.
producers.
foreign buyers.
government.
households.
producers.
question
expected inflation is lower.
answer
The short-run aggregate supply curve shifts to the right when
output gap is higher.
expected inflation is higher.
expected inflation is lower.
output gap is lower.
output gap is higher.
expected inflation is higher.
expected inflation is lower.
output gap is lower.
question
taxes are cut.
answer
Everything else held constant, aggregate demand increases when
taxes are cut.
animal spirits decrease.
government spending is reduced.
the money supply is reduced.
taxes are cut.
animal spirits decrease.
government spending is reduced.
the money supply is reduced.
question
decreases; decreases
answer
Employing the "Keyneisan" approach (legacy model), according to the wealth effect, an increase in the price level (i.e. inflation) ________ real wealth and ________ consumption expenditure.
decreases; decreases
decreases; increases
increases; increases
increases; decreases
decreases; decreases
decreases; increases
increases; increases
increases; decreases
question
shifts; shifts
answer
An increase in the amount of human capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve.
shifts; does not shift
does not shift; shifts
does not shift; does not shift
shifts; shifts
shifts; does not shift
does not shift; shifts
does not shift; does not shift
shifts; shifts
question
short-run aggregate supply
answer
Everything else held constant, a change in workers' expectations about inflation will cause ________ to change.
aggregate demand
the production function
long-run aggregate supply
short-run aggregate supply
aggregate demand
the production function
long-run aggregate supply
short-run aggregate supply
question
increases the short-run aggregate supply.
answer
A decrease in the inflationary expectations:
increases the short-run aggregate supply.
increases the long-run aggregate supply.
decreases the short-run aggregate supply.
decreases the long-run aggregate supply.
increases the short-run aggregate supply.
increases the long-run aggregate supply.
decreases the short-run aggregate supply.
decreases the long-run aggregate supply.
question
there is full employment and real GDP is equal to potential GDP.
answer
In the macroeconomic long run,
there is full employment and real GDP is equal to potential GDP.
output always is above potential GDP.
GDP always is below potential GDP.
there is full employment with no unemployment.
there is full employment and real GDP is equal to potential GDP.
output always is above potential GDP.
GDP always is below potential GDP.
there is full employment with no unemployment.
question
is one reason that the aggregate demand curve has a negative slope (slopes downward).
answer
in the "legacy" (i.e. Keynesian) approach to aggregate demand, the interest rate effect on aggregate demand
is one reason that the aggregate demand curve has a negative slope (slopes downward).
is the same as the real wealth effect.
explains why aggregate demand increases when the amount of money increases.
is one reason that the aggregate demand curve has a positive slope (slopes upward).
is one reason that the aggregate demand curve has a negative slope (slopes downward).
is the same as the real wealth effect.
explains why aggregate demand increases when the amount of money increases.
is one reason that the aggregate demand curve has a positive slope (slopes upward).
question
distinguish between long-run aggregate supply and short-run aggregate supply.
answer
When talking about aggregate supply, it is necessary to
distinguish between long-run full employment and short-run full-employment.
focus on the long run.
focus on the short run.
distinguish between long-run aggregate supply and short-run aggregate supply.
distinguish between long-run full employment and short-run full-employment.
focus on the long run.
focus on the short run.
distinguish between long-run aggregate supply and short-run aggregate supply.
question
increases aggregate demand in the United States.
answer
An increase in foreign incomes
increases aggregate demand in the United States.
decreases aggregate demand in the United States.
increases the aggregate quantity demanded in the United States.
decreases the aggregate quantity demanded in the United States.
increases aggregate demand in the United States.
decreases aggregate demand in the United States.
increases the aggregate quantity demanded in the United States.
decreases the aggregate quantity demanded in the United States.
question
real GDP is equal to potential GDP.
answer
In the long-run
real GDP is equal to potential GDP.
the aggregate supply curve is upward sloping.
All of the above answers are correct.
aggregate supply depends on the price level.
real GDP is equal to potential GDP.
the aggregate supply curve is upward sloping.
All of the above answers are correct.
aggregate supply depends on the price level.
question
SRAS curve shifts rightward.
answer
(Note: SRAS = short-run aggregate supply. LRAS = long-run aggregate supply). If the money price of a resource such as oil falls (i.e. a favorable price shock), then the
SRAS curve shifts rightward.
LRAS curve shifts leftward.
SRAS curve shifts leftward.
LRAS curve shifts rightward.
SRAS curve shifts rightward.
LRAS curve shifts leftward.
SRAS curve shifts leftward.
LRAS curve shifts rightward.
question
long-run and the short-run aggregate supply curves rightward.
answer
A major technological advance shifts the
long-run and the short-run aggregate supply curves rightward.
long-run aggregate supply curve rightward and the short-run aggregate supply curve leftward.
short-run aggregate supply curve rightward but does not shift the long-run aggregate supply curve.
long-run aggregate supply curve rightward but does not shift the short-run aggregate supply curve.
long-run and the short-run aggregate supply curves rightward.
long-run aggregate supply curve rightward and the short-run aggregate supply curve leftward.
short-run aggregate supply curve rightward but does not shift the long-run aggregate supply curve.
long-run aggregate supply curve rightward but does not shift the short-run aggregate supply curve.
question
the money wage rate (and other input prices) remains constant so the higher prices from inflation makes it profitable for firms to expand production.
answer
The short-run aggregate supply curve is upward sloping because
the money wage rate (and other input prices) remains constant so the higher prices from inflation makes it profitable for firms to expand production.
firms can increase their profits by increasing their maintenance.
the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits.
each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases.
the money wage rate (and other input prices) remains constant so the higher prices from inflation makes it profitable for firms to expand production.
firms can increase their profits by increasing their maintenance.
the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits.
each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases.
question
aggregate supply curve.
answer
The quantity of aggregate production at different rates of inflation is reflected by the
aggregate demand curve.
aggregate supply curve.
total expenditure curve.
real wealth curve.
aggregate demand curve.
aggregate supply curve.
total expenditure curve.
real wealth curve.
question
Keynesian
answer
________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.
Keynesian
Classical
All
Monetarist
Keynesian
Classical
All
Monetarist
question
increases; demand
answer
Everything else held constant, a decrease in net taxes ________ aggregate ________.
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
question
distinguish between long-run aggregate supply and short-run aggregate supply.
answer
When talking about aggregate supply, it is necessary to
distinguish between long-run full employment and short-run full-employment.
focus on the long run.
focus on the short run.
distinguish between long-run aggregate supply and short-run aggregate supply.
distinguish between long-run full employment and short-run full-employment.
focus on the long run.
focus on the short run.
distinguish between long-run aggregate supply and short-run aggregate supply.
question
do not change; does not change; does not change
answer
Moving along a short-run aggregate supply curve, resource prices (and other input prices) ________, the money rate wage ________, and potential GDP ________.
do not change; does not change; does not change
do not change; changes; does not change
change; does not change; does not change
do not change; does not change; changes
do not change; does not change; does not change
do not change; changes; does not change
change; does not change; does not change
do not change; does not change; changes
question
Changes in autonomous components are associated with movements along a curve.
answer
Which of the followings is NOT true about the word "autonomous" that economists use?
Changes in autonomous components are associated with movements along a curve.
Changes in autonomous components are associated with shifts of a curve.
The autonomous component of a variable is exogenous.
The autonomous component of a variable is independent of other variables in the model.
Changes in autonomous components are associated with movements along a curve.
Changes in autonomous components are associated with shifts of a curve.
The autonomous component of a variable is exogenous.
The autonomous component of a variable is independent of other variables in the model.
question
a vertical line through the natural rate level of output.
answer
The long-run aggregate supply curve is
a vertical line through the natural rate level of output.
a vertical line through the non-inflationary rate of output.
a vertical line through the current level of output.
a horizontal line through the current level of output.
a vertical line through the natural rate level of output.
a vertical line through the non-inflationary rate of output.
a vertical line through the current level of output.
a horizontal line through the current level of output.
question
decreases; demand
answer
Everything else held constant, an increase in financial frictions ________ aggregate ________.
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
question
increases; demand
answer
Everything else held constant, an autonomous (i.e. discretionary) expansionary monetary policy (i.e. lowering interest rates) ________ aggregate ________.
increases; demand
decreases; supply
decreases; demand
increases; supply
increases; demand
decreases; supply
decreases; demand
increases; supply
question
consumer expenditures, planned investment spending, government spending, and net exports.
answer
One way to derive aggregate demand is by looking at its four component parts, which are
consumer expenditures, planned investment spending, government spending, and taxes.
consumer expenditures, actual investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and gross exports.
consumer expenditures, planned investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and taxes.
consumer expenditures, actual investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and gross exports.
consumer expenditures, planned investment spending, government spending, and net exports.
question
decreases aggregate demand.
answer
A rise in the exchange rate of the dollar
decreases aggregate demand.
increases the aggregate quantity demanded.
increases aggregate demand.
decreases the aggregate quantity demanded.
decreases aggregate demand.
increases the aggregate quantity demanded.
increases aggregate demand.
decreases the aggregate quantity demanded.
question
all of the answers in this question.
answer
Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in:
quantity of labor.
quality and quantity of other inputs.
quantity of capital (physical capital and human capital).
technology.
all of the answers in this question.
quantity of labor.
quality and quantity of other inputs.
quantity of capital (physical capital and human capital).
technology.
all of the answers in this question.
question
an increase in the price of oil that decreases aggregate supply
answer
Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?
an increase in the price of oil that decreases aggregate supply
an increase in government expenditures
a decrease in the quantity of money
an increase in the stock of capital that increases aggregate supply
an increase in the price of oil that decreases aggregate supply
an increase in government expenditures
a decrease in the quantity of money
an increase in the stock of capital that increases aggregate supply
question
The government increases taxes on both business and personal income.
answer
Which of the following decreases aggregate demand?
Households believe that the economy is headed for good times, with higher future incomes.
The quantity of money in the economy increases.
Foreign incomes rise.
The government increases taxes on both business and personal income.
Households believe that the economy is headed for good times, with higher future incomes.
The quantity of money in the economy increases.
Foreign incomes rise.
The government increases taxes on both business and personal income.
question
decreases; demand
answer
Everything else held constant, a decrease in investment expenditure ________ aggregate ________.
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
question
a lower inflation rate causes the real interest rate to fall, and stimulates investment spending.
answer
We can conclude that the aggregate demand curve is downward sloping (i.e. from the modern approach) and because of automatic FED policy:
a higher inflation rate causes the real interest rate to rise, and stimulates investment spending.
a lower inflation rate causes the real interest rate to rise, and stimulates investment spending.
a higher inflation rate causes the real interest rate to fall, and stimulates investment spending.
a lower inflation rate causes the real interest rate to fall, and stimulates investment spending.
a higher inflation rate causes the real interest rate to rise, and stimulates investment spending.
a lower inflation rate causes the real interest rate to rise, and stimulates investment spending.
a higher inflation rate causes the real interest rate to fall, and stimulates investment spending.
a lower inflation rate causes the real interest rate to fall, and stimulates investment spending.
question
natural rate of unemployment.
answer
The long-run rate of unemployment to which an economy always gravitates is the
natural rate of unemployment.
neutral rate of unemployment.
normal rate of unemployment.
inflationary rate of unemployment.
natural rate of unemployment.
neutral rate of unemployment.
normal rate of unemployment.
inflationary rate of unemployment.
question
marginal costs rise with increased output so firms have to receive higher prices to justify their increase in output.
answer
The short-run aggregate supply curve is upward sloping because
marginal costs rise with increased output so firms have to receive higher prices to justify their increase in output.
technology is scarce.
capital is scarce.
potential GDP is less than real GDP when the price level falls.
marginal costs rise with increased output so firms have to receive higher prices to justify their increase in output.
technology is scarce.
capital is scarce.
potential GDP is less than real GDP when the price level falls.
question
the aggregate supply curve is upward sloping.
answer
In the short-run
the aggregate supply curve is upward sloping.
the price level does not change.
real GDP is always equal to potential GDP.
the money wage rate can change.
the aggregate supply curve is upward sloping.
the price level does not change.
real GDP is always equal to potential GDP.
the money wage rate can change.
question
decreases; demand
answer
Everything else held constant, an increase in net taxes ________ aggregate ________.
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
question
has a positive slope.
answer
The short-run aggregate supply curve
has a positive slope.
is vertical.
has a negative slope.
is horizontal.
has a positive slope.
is vertical.
has a negative slope.
is horizontal.
question
decreases the short-run aggregate supply.
answer
An increase in expected inflation that increases the money wage rate (or other input prices):
decreases the short-run aggregate supply.
increases the long-run aggregate supply.
increases the short-run aggregate supply.
decreases the long-run aggregate supply.
decreases the short-run aggregate supply.
increases the long-run aggregate supply.
increases the short-run aggregate supply.
decreases the long-run aggregate supply.
question
decreases aggregate demand.
answer
A decrease in the quantity of money
increases aggregate demand.
decreases the aggregate quantity demanded.
increases the aggregate quantity demanded.
decreases aggregate demand.
increases aggregate demand.
decreases the aggregate quantity demanded.
increases the aggregate quantity demanded.
decreases aggregate demand.
question
a vertical line through the potential GDP which is constant with the natural rate of unemployment.
answer
The long-run aggregate supply curve is
a vertical line through the potential GDP which is constant with the natural rate of unemployment.
an upward-sloping line through the non-inflationary rate of output.
a vertical line through the current level of output.
a horizontal line through the current level of output.
a vertical line through the potential GDP which is constant with the natural rate of unemployment.
an upward-sloping line through the non-inflationary rate of output.
a vertical line through the current level of output.
a horizontal line through the current level of output.
question
decreases; demand
answer
Everything else held constant, a decrease in government spending ________ aggregate ________.
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
question
a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
answer
Employing the modern FED approach , aggregate demand curve is downward sloping because
a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending
a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending
question
unemployment is at its natural rate.
answer
At potential GDP
unemployment is at its natural rate.
there is no unemployment but there is not necessarily full employment.
None of the above is correct.
there is no unemployment and there is full employment.
unemployment is at its natural rate.
there is no unemployment but there is not necessarily full employment.
None of the above is correct.
there is no unemployment and there is full employment.
question
leftward shift in the U.S. aggregate demand curve.
answer
The U.S. exchange rate rises. As a result, there is a
rightward shift in the long-run U.S. aggregate supply curve.
rightward shift in the U.S. aggregate demand curve.
movement along the U.S. aggregate demand curve but the curve does not shift.
leftward shift in the U.S. aggregate demand curve.
rightward shift in the long-run U.S. aggregate supply curve.
rightward shift in the U.S. aggregate demand curve.
movement along the U.S. aggregate demand curve but the curve does not shift.
leftward shift in the U.S. aggregate demand curve.
question
the aggregate demand curve.
answer
The total quantity of an economy's final goods and services demanded at different inflation rates is
the aggregate demand curve.
the aggregate supply curve.
the Phillips curve.
the aggregate expenditure function.
the aggregate demand curve.
the aggregate supply curve.
the Phillips curve.
the aggregate expenditure function.
question
the inflation rate and the level of aggregate output supplied.
answer
The aggregate supply curve shows the relationship between
the inflation rate and the level of aggregate output supplied.
the inflation rate and the level of inputs.
the wage rate and the level of employment.
the level of inputs and aggregate output.
the inflation rate and the level of aggregate output supplied.
the inflation rate and the level of inputs.
the wage rate and the level of employment.
the level of inputs and aggregate output.
question
decreases aggregate demand in the United States.
answer
A decrease in foreign incomes
decreases aggregate demand in the United States.
increases the aggregate quantity demanded in the United States.
decreases the aggregate quantity demanded in the United States.
increases aggregate demand in the United States.
decreases aggregate demand in the United States.
increases the aggregate quantity demanded in the United States.
decreases the aggregate quantity demanded in the United States.
increases aggregate demand in the United States.
question
final goods and services offered for sale at different inflation rates.
answer
The aggregate supply curve is the total quantity of
final goods and services offered for sale at different inflation rates.
intermediate and final goods and service offered for sale at different inflation rates.
final goods and services offered for sale at the current inflation rate.
raw materials offered for sale at different inflation rates.
final goods and services offered for sale at different inflation rates.
intermediate and final goods and service offered for sale at different inflation rates.
final goods and services offered for sale at the current inflation rate.
raw materials offered for sale at different inflation rates.
question
today's money wage rate; yesterday's rational expectations of the price level
answer
New Keynesian economists believe that ________ is influenced by ________.
today's money wage rate; yesterday's rational expectations of the price level
today's money wage rate; today's rational expectations of the price level
yesterday's money wage rate ; today's rational expectations of the money wage
yesterday's rational expectations of the price level; today's money wage rate
today's money wage rate; yesterday's rational expectations of the price level
today's money wage rate; today's rational expectations of the price level
yesterday's money wage rate ; today's rational expectations of the money wage
yesterday's rational expectations of the price level; today's money wage rate
question
inappropriate monetary policy.
answer
For monetarists the main cause of economic fluctuations is changes in
investment.
consumption expenditure.
the levels of household debt.
inappropriate monetary policy.
investment.
consumption expenditure.
the levels of household debt.
inappropriate monetary policy.
question
rigid money wage rates (i.e. sticky prices and wages).
answer
The Keynesian explanation of the business cycle rests on several concepts, including
shocks to the rate of technological change.
unstable monetary policy by the Fed.
the desire of politicians to be re-elected.
rigid money wage rates (i.e. sticky prices and wages).
shocks to the rate of technological change.
unstable monetary policy by the Fed.
the desire of politicians to be re-elected.
rigid money wage rates (i.e. sticky prices and wages).
question
liquidity trap.
answer
If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a:
liquidity trap.
new classical trap.
velocity trap.
1970's.
liquidity trap.
new classical trap.
velocity trap.
1970's.
question
people make rational expectations about aggregate demand.
answer
One assumption of the new classical model is that
money wage rates are rigid.
markets are not purely competitive.
prices are "sticky" upward.
people make rational expectations about aggregate demand.
money wage rates are rigid.
markets are not purely competitive.
prices are "sticky" upward.
people make rational expectations about aggregate demand.
question
productivity
answer
Real business cycle theory says that the factor leading to the business cycle is changes in
productivity.
the growth rate of the quantity of money.
only aggregate demand.
animal spirits.
productivity.
the growth rate of the quantity of money.
only aggregate demand.
animal spirits.
question
actual GDP always equals potential GDP, making all unemployment voluntary.
answer
Taken to its logical conclusion, the real business cycle theory (and New Classical Theory) proposes that:
actual GDP is always greater than potential GDP.
actual GDP always equals potential GDP, making all unemployment involuntary.
actual GDP never equals potential GDP, making all unemployment involuntary.
actual GDP always equals potential GDP, making all unemployment voluntary.
actual GDP is always greater than potential GDP.
actual GDP always equals potential GDP, making all unemployment involuntary.
actual GDP never equals potential GDP, making all unemployment involuntary.
actual GDP always equals potential GDP, making all unemployment voluntary.
question
All of the answers are correct.
answer
According to the new Keynesian theory,
expected changes in aggregate demand change real GDP.
unexpected changes in aggregate demand change real GDP.
current and past expectations of the price level determine the money wage rate.
All of the answers are correct.
expected changes in aggregate demand change real GDP.
unexpected changes in aggregate demand change real GDP.
current and past expectations of the price level determine the money wage rate.
All of the answers are correct.
question
includes all of the answers in this question.
answer
The monetarist school of thought:
focused on monetary policy.
proposed the monetary rule.
is a newer classical school of thought.
includes all of the answers in this question.
focused on monetary policy.
proposed the monetary rule.
is a newer classical school of thought.
includes all of the answers in this question.
question
usually positive but occasionally negative.
answer
The real business cycle (RBC) theory assets that the impact on real GDP of technological change is
always positive.
always negative.
nonexistent.
usually positive but occasionally negative.
always positive.
always negative.
nonexistent.
usually positive but occasionally negative.
question
aggregate demand shocks do not effect the business cycle.
answer
The real business cycle theory proposes that::
government activism in the macro economy is essential.
aggregate demand shocks do effect the business cycle.
aggregate demand shocks are the only factors affecting the business cycle.
aggregate demand shocks do not effect the business cycle.
government activism in the macro economy is essential.
aggregate demand shocks do effect the business cycle.
aggregate demand shocks are the only factors affecting the business cycle.
aggregate demand shocks do not effect the business cycle.
question
consumer expenditures, planned investment spending, government spending, and net exports.
answer
One way to derive aggregate demand is by looking at its four component parts, which are
consumer expenditures, planned investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and taxes.
consumer expenditures, actual investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and gross exports.
consumer expenditures, planned investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and taxes.
consumer expenditures, actual investment spending, government spending, and net exports.
consumer expenditures, planned investment spending, government spending, and gross exports.
question
rational expectations/new classical
answer
"If policy is anticipated, there is no short-run" is a property of the__________ school of thought.
real business cycle
monetarist
rational expectations/new classical
Keynesian
classical
real business cycle
monetarist
rational expectations/new classical
Keynesian
classical
question
supply-siders.
answer
Economists who believe tax policy has a big effect on employment and potential GDP are called
supply-siders.
fiscalists.
demand-siders.
libertarians.
supply-siders.
fiscalists.
demand-siders.
libertarians.
question
Keynesian
answer
Which school of thought holds the policy is effective in both the long-run and short-run?
classical
supply-side
monetarist
rational expectations-new classical
Keynesian
classical
supply-side
monetarist
rational expectations-new classical
Keynesian
question
rational expectations/new classical
answer
"If policy is anticipated, there is no short-run" is a property of the__________ school of thought.
real business cycle
Keynesian
rational expectations/new classical
monetarist
classical
real business cycle
Keynesian
rational expectations/new classical
monetarist
classical
question
all of the answers in this question are correct.
answer
Many Keynesian economists argue:
there is great (and increasing) uneven distribution of income that can actually reduce economic efficiency in the long-run.
entrepreneurs exist in a framework of social infrastructures which is supported by taxpayers.
the tradeoff between efficiency and equity is small at the current level of marginal tax rates and government spending.
all of the answers in this question are correct
there is great (and increasing) uneven distribution of income that can actually reduce economic efficiency in the long-run.
entrepreneurs exist in a framework of social infrastructures which is supported by taxpayers.
the tradeoff between efficiency and equity is small at the current level of marginal tax rates and government spending.
all of the answers in this question are correct
question
real business cycle theory
answer
Which theory fundamentally denies demand-side economic shocks?
both the new classical cycle theory and the new Keynesian cycle theory
real business cycle theory
Keynesian cycle theory
monetarist cycle theory
both the new classical cycle theory and the new Keynesian cycle theory
real business cycle theory
Keynesian cycle theory
monetarist cycle theory
question
Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand.
answer
Which of the following is a criticism of real business cycle theory?
Real business cycle theory assumes that money wage rates are sticky.
Real business cycle theory fails to explain the phenomenon of economic growth.
Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand.
None of the above are criticisms of real business cycle theory.
Real business cycle theory assumes that money wage rates are sticky.
Real business cycle theory fails to explain the phenomenon of economic growth.
Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand.
None of the above are criticisms of real business cycle theory.
question
promote full employment.
answer
The Employment Act of 1946 states that it is the responsibility of the federal government to
promote full employment.
maintain the inflation rate at below 10 percent per year.
promote economic equality.
All of the above answers are correct.
promote full employment.
maintain the inflation rate at below 10 percent per year.
promote economic equality.
All of the above answers are correct.
question
volatile investment spending arising from fluctuations in business confidence.
answer
Keynes used the term "animal spirits" to
represent
changes in imports and exports.
volatile investment spending arising from fluctuations in business confidence.
the ease of forecasting.
investment based on hard facts about the future.
represent
changes in imports and exports.
volatile investment spending arising from fluctuations in business confidence.
the ease of forecasting.
investment based on hard facts about the future.
question
continuing increases in the quantity of money.
answer
Demand-pull inflation persists because of
continuing increases in real wage rates.
continuing increases in government expenditures.
continuing increases in aggregate supply.
continuing increases in the quantity of money.
continuing increases in real wage rates.
continuing increases in government expenditures.
continuing increases in aggregate supply.
continuing increases in the quantity of money.
question
technology; productivity
answer
The real business cycle theory asserts that changes in ________ lead to changes in ________.
animal spirits; real GDP
technology; productivity
consumption expenditure; real GDP
the quantity of money; real GDP
animal spirits; real GDP
technology; productivity
consumption expenditure; real GDP
the quantity of money; real GDP
question
shifted the aggregate demand curve to the left.
answer
The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall
shifted the aggregate supply curve to the right.
shifted the aggregate demand curve to the left.
shifted the aggregate demand curve to the right.
shifted the aggregate supply curve to the left.
shifted the aggregate supply curve to the right.
shifted the aggregate demand curve to the left.
shifted the aggregate demand curve to the right.
shifted the aggregate supply curve to the left.
question
monetarist
answer
Adaptive expectations are a property of the__________ school of thought.
Keynesian
rational expectations/new classical
classical
real business cycle
monetarist
Keynesian
rational expectations/new classical
classical
real business cycle
monetarist
question
the instability of investment and consumption spending by investors and consumers.
answer
According to the original Keynesian school, the primary source of the business cycle is:
FED policy with regards to monetary policy (money supply changes) and its effect on aggregate demand.
supply side shocks from technological change.
the instability of investment and consumption spending by investors and consumers.
from unexpected fluctuations in aggregate demand in a rare divergence from normal rational expectations.
from unexpected fluctuations in aggregate demand and the fact that today's money wage rates were negotiated at past dates.....thus past rational expectations of the current price level influence the current wage rate.
FED policy with regards to monetary policy (money supply changes) and its effect on aggregate demand.
supply side shocks from technological change.
the instability of investment and consumption spending by investors and consumers.
from unexpected fluctuations in aggregate demand in a rare divergence from normal rational expectations.
from unexpected fluctuations in aggregate demand and the fact that today's money wage rates were negotiated at past dates.....thus past rational expectations of the current price level influence the current wage rate.
question
the natural rate of output.
answer
The long-run aggregate supply curve is a vertical line passing through
the natural-rate price level.
the natural rate of output.
the actual rate of unemployment.
the expected rate of inflation.
the natural-rate price level.
the natural rate of output.
the actual rate of unemployment.
the expected rate of inflation.
question
Keynesian
answer
Sticky prices and wages are a property of the__________ school of thought.
monetarist
Keynesian
classical
real business cycle
rational expectations/new classical
monetarist
Keynesian
classical
real business cycle
rational expectations/new classical
question
tax cuts increase potential GDP.
answer
If a tax cut increases people's labor supply, then
tax cuts decrease aggregate demand.
tax cuts increase potential GDP.
tax cuts cannot affect aggregate demand.
Both answers A and B are correct.
tax cuts decrease aggregate demand.
tax cuts increase potential GDP.
tax cuts cannot affect aggregate demand.
Both answers A and B are correct.
question
real business cycle theory
answer
By itself, an increase in aggregate demand increases GDP by the least amount (or zero) in the ________.
Keynesian theory
real business cycle theory
monetarist theory
new Keynesian theory
Keynesian theory
real business cycle theory
monetarist theory
new Keynesian theory
question
decreases; demand
answer
Everything else held constant, an increase in financial frictions ________ aggregate ________.
increases; demand
decreases; demand
decreases; supply
increases; supply
increases; demand
decreases; demand
decreases; supply
increases; supply
question
also the most fair system to the poor and disadvantaged.
answer
According to many modern classical economists, the economic system that is most efficient is: (i.e. implying minimal regulations, small social safety net, and low tax rates) is:
also the most fair system to the poor and disadvantaged.
unfair to the poor and violates the basic premises of the classical model.
undesirable and the size of government should be increased for greater fairness.
still desirable despite being unfair to the poor and disadvantaged.
also the most fair system to the poor and disadvantaged.
unfair to the poor and violates the basic premises of the classical model.
undesirable and the size of government should be increased for greater fairness.
still desirable despite being unfair to the poor and disadvantaged.
question
an increase in taxes
answer
Everything else held constant, which of the following does NOT cause aggregate demand to increase?
an increase in taxes
an increase in net exports
an increase in government spending
an increase in consumer optimism
an increase in taxes
an increase in net exports
an increase in government spending
an increase in consumer optimism
question
New Keynesian
answer
"Current economic parameters are determined by past rational expectations" is a property of the__________ school of thought.
real business cycle
New Keynesian
rational expectations/new classical
classical
monetarist
real business cycle
New Keynesian
rational expectations/new classical
classical
monetarist
question
the new classical cycle theory.
answer
Suppose that following an expected decline in the price level, workers immediately renegotiate their money wage rates to match the fall in prices. This behavior is most consistent with
monetarist business cycle theory.
new Keynesian cycle theory.
the new classical cycle theory.
All of the above answers are correct.
monetarist business cycle theory.
new Keynesian cycle theory.
the new classical cycle theory.
All of the above answers are correct.
question
all of the answers in this question are correct.
answer
Which of the following is true?
Many of today's supply side economists expect that cutting the high marginal tax rates will create a Laffer curve effect and increase tax revenues.
Many Keynesian economists have argued for strong fiscal policy actions while classical economists have opposed them.
Some current proposals to cut the budget deficit will fundamentally change and likely reduce many New Deal and Great Society income transfer programs such as Medicare, Medicaid, and Social Security.
all of the answers in this question are correct.
Many Keynesian economists argue that deep cuts in income transfer programs will harm the poor and will not solve the long-run budget deficit and national debt problems.
Many of today's supply side economists expect that cutting the high marginal tax rates will create a Laffer curve effect and increase tax revenues.
Many Keynesian economists have argued for strong fiscal policy actions while classical economists have opposed them.
Some current proposals to cut the budget deficit will fundamentally change and likely reduce many New Deal and Great Society income transfer programs such as Medicare, Medicaid, and Social Security.
all of the answers in this question are correct.
Many Keynesian economists argue that deep cuts in income transfer programs will harm the poor and will not solve the long-run budget deficit and national debt problems.
question
True
answer
In our balloon example, the skin of the balloon is analogous to potential GDP.
True
False
True
False
question
True
answer
With negative nominal interest rates, banks pay borrowers interest and charge savers interest.
True
False
True
False
question
True
answer
The sum of the current, capital and official settlements accounts is always zero.
True
False
True
False
question
includes all of the answers in this question.
answer
The monetarist school of thought:
focused on monetary policy.
proposed the monetary rule.
is a newer (Post WW II) classical school of thought.
includes all of the answers in this question.
focused on monetary policy.
proposed the monetary rule.
is a newer (Post WW II) classical school of thought.
includes all of the answers in this question.
question
property taxes.
answer
In 1929 the most important source of state and local finance was:
transfers from the federal government.
state income taxes.
sales taxes.
property taxes.
transfers from the federal government.
state income taxes.
sales taxes.
property taxes.
question
regressive.
answer
Suppose that you pay $1000 in taxes and Bill pays $1,000 in taxes. Your annual income is $50,000 and Bill's income is $100,000. This tax system is:
progressive.
none of the above.
proportional.
regressive.
progressive.
none of the above.
proportional.
regressive.
question
$500 billion capital/financial account surplus.
answer
Assuming no governmental reserve transactions, if the U.S. is running a $500 billion trade deficit, it is also running a:
$1,000 capital/financial account deficit.
$500 billion capital/financial account deficit.
$500 billion capital/financial account surplus.
$1,000 billion capital/financial account surplus.
$1,000 capital/financial account deficit.
$500 billion capital/financial account deficit.
$500 billion capital/financial account surplus.
$1,000 billion capital/financial account surplus.
question
$30 trillion
answer
The 2022 --- approximate U.S. debt:
$10.7 trillion
$30 trillion
$22 trillion
$143 trillion
$10.7 trillion
$30 trillion
$22 trillion
$143 trillion
question
cyclically balanced budget
answer
Which theory of balancing the budget balances it over the business cycle?
always balance budget
annually balanced budget
functional finance
cyclically balanced budget
always balance budget
annually balanced budget
functional finance
cyclically balanced budget
question
reduce the U.S. budget deficit
answer
Which would likely be the most effective way to reduce the U.S. trade deficit?
increase U.S. consumer preferences towards domestic goods.
increase personal savings rates
reduce the U.S. budget deficit
increase tariff and quotas on imported goods and services.
increase U.S. consumer preferences towards domestic goods.
increase personal savings rates
reduce the U.S. budget deficit
increase tariff and quotas on imported goods and services.
question
real GDP.
answer
Y in the equation of exchange equals:
nominal GDP.
velocity.
money stock.
real GDP.
nominal GDP.
velocity.
money stock.
real GDP.
question
long run growth of real or potential GDP.
answer
The monetary rule states that money supply growth should be set equal to the:
short-run growth of real GDP.
long run growth of real or potential GDP.
long run growth of velocity.
long run growth of employment.
short-run growth of real GDP.
long run growth of real or potential GDP.
long run growth of velocity.
long run growth of employment.
question
the economy moves quickly from point "1" to point "2" and then moves to point "3".
answer
Suppose the central bank has low (or no) credibility and aggregate demand shifts rightward due to an unexpected positive demand shock increasing inflation:
the economy stays at point "1".
the economy moves quickly from point "1" to point "2" and then moves to point "3".
the economy moves from point "1" to point "2" and then returns to point "1).
the economy moves from point "1" to point "3".
the economy stays at point "1".
the economy moves quickly from point "1" to point "2" and then moves to point "3".
the economy moves from point "1" to point "2" and then returns to point "1).
the economy moves from point "1" to point "3".
question
Medicare.
answer
The largest component of the generational fiscal imbalance is
Social Security.
Medicare.
Defense spending.
none of the above
Social Security.
Medicare.
Defense spending.
none of the above
question
on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010.
answer
When the velocity equals 4 in 2010, this fact means that
consumers held four dollars in wealth for each dollar they spent in 2010.
for each additional dollar of money injected into the economy, the price level rose 4 percent in 2010.
on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010.
real output of goods and services in GDP rose by four dollars for each additional dollar of money consumers saved.
consumers held four dollars in wealth for each dollar they spent in 2010.
for each additional dollar of money injected into the economy, the price level rose 4 percent in 2010.
on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010.
real output of goods and services in GDP rose by four dollars for each additional dollar of money consumers saved.
question
increasing.
answer
Ceteris paribus, if velocity is decreasing, money demand is:
decreasing.
increasing.
decreasing rapidly.
staying the same.
decreasing.
increasing.
decreasing rapidly.
staying the same.
question
unstable.
answer
Keynesians believe that velocity is:
can be established by government action.
unstable.
stable.
constant and never changes.
can be established by government action.
unstable.
stable.
constant and never changes.
question
long run growth of real GDP.
answer
The monetary rule states that money supply growth should be set equal to the:
long run growth of real GDP.
short-run growth of real GDP.
long run growth of employment.
long run growth of velocity.
long run growth of real GDP.
short-run growth of real GDP.
long run growth of employment.
long run growth of velocity.
question
nominal GDP.
answer
P*Y in the equation of exchange equals:
money stock.
real GDP.
velocity.
nominal GDP.
money stock.
real GDP.
velocity.
nominal GDP.
question
3.00.
answer
Suppose that M = 300, P = 150, and Y = 6. Then the velocity of circulation equals
3.00.
0.02.
2.00.
0.50.
3.00.
0.02.
2.00.
0.50.
question
wages and prices are assumed to be sticky with respect to expected changes in the price level.
answer
In the new Keynesian model
only anticipated policy can affect aggregate output and unemployment.
only unanticipated policy can affect aggregate output and unemployment.
wages and prices are assumed to be sticky with respect to expected changes in the price level.
unanticipated policy has no effect on aggregate output and unemployment.
only anticipated policy can affect aggregate output and unemployment.
only unanticipated policy can affect aggregate output and unemployment.
wages and prices are assumed to be sticky with respect to expected changes in the price level.
unanticipated policy has no effect on aggregate output and unemployment.
question
households increase their personal saving when governments run budget deficits.
answer
According to the Ricardo-Barro effect,
households increase their personal saving when governments run budget deficits.
government budget deficits increase households' expected future disposable income.
government deficits raise the real interest rate.
taxpayers fail to foresee that government deficits imply higher future taxes.
households increase their personal saving when governments run budget deficits.
government budget deficits increase households' expected future disposable income.
government deficits raise the real interest rate.
taxpayers fail to foresee that government deficits imply higher future taxes.
question
policymakers are tempted to pursue discretionary policy that is more expansionary in the short run to solve the unemployment problem while ignoring the effects on inflation.
answer
Monetary policy is considered time-inconsistent because
policymakers are tempted to pursue discretionary policy that is more contractionary in the short run.
of the lag times associated with the implementation of monetary policy and its effect on the economy.
of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.
policymakers are tempted to pursue discretionary policy that is more expansionary in the short run to solve the unemployment problem while ignoring the effects on inflation.
policymakers are tempted to pursue discretionary policy that is more contractionary in the short run.
of the lag times associated with the implementation of monetary policy and its effect on the economy.
of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.
policymakers are tempted to pursue discretionary policy that is more expansionary in the short run to solve the unemployment problem while ignoring the effects on inflation.
question
new classical cycle theory
answer
Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP?
new classical cycle theory
Keynesian cycle theory
real business cycle theory
monetarist cycle theory
new classical cycle theory
Keynesian cycle theory
real business cycle theory
monetarist cycle theory
question
S + (T - G) + (M-X)
answer
I equals
S + T + G.
C + T + G + (M-X).
S + (T - G) + (M-X)
C + S + T.
S + T + G.
C + T + G + (M-X).
S + (T - G) + (M-X)
C + S + T.
question
Government borrowing from the budget deficit leads to higher real interest rates which cause foreigners to invest in the U.S. which increase the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
answer
What is the link between the budget deficit and the trade deficit?
There is no relationship between the budget deficit and trade deficit.
Government borrowing from the budget deficit leads to higher real interest rates which cause foreigners to invest in the U.S. which increase the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
Government borrowing from the budget deficit leads to higher lower real interest rates which cause foreigners to invest in the U.S. which decrease the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
Government borrowing from the budget deficit leads to higher real interest rates which cause foreigners to pull their money out of the U.S. due to its cost which decrease the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
There is no relationship between the budget deficit and trade deficit.
Government borrowing from the budget deficit leads to higher real interest rates which cause foreigners to invest in the U.S. which increase the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
Government borrowing from the budget deficit leads to higher lower real interest rates which cause foreigners to invest in the U.S. which decrease the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
Government borrowing from the budget deficit leads to higher real interest rates which cause foreigners to pull their money out of the U.S. due to its cost which decrease the international value of the dollar causing imports to rise and exports to fall....i.e. trade deficit.
question
-$100 debit in services in the current account.
answer
If Microsoft buys $100 of software from a Chinese firm, it is reflected initially as a:
-$100 debit in services in the capital account.
+$100 credit in services in the capital account.
+$100 credit in services in the current account.
-$100 debit in services in the current account.
-$100 debit in services in the capital account.
+$100 credit in services in the capital account.
+$100 credit in services in the current account.
-$100 debit in services in the current account.
question
transfers from the federal government.
answer
By 2001 the most important source of state and local finance was:
property taxes.
state income taxes.
sales taxes
transfers from the federal government.
property taxes.
state income taxes.
sales taxes
transfers from the federal government.
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