Deck 13: Macroeconomic Models:a Summary

Question 1

With respect to the demand side,the Keynesian model

A)includes monetary factors.
B)provides a role for government spending and taxes.
C)includes autonomous investment.
D)All of the above
E)None of the above

Answer 1

D

Question 2

In which model does there not exist a tradeoff between higher inflation and lower unemployment?

A)monetarist
B)real business cycle
C)new classical
D)classical
E)a tradeoff exists in all of the above

Answer 2

B

Question 3

According to the new classical view,changes in aggregate demand

A)can temporarily influence output
B)affect only the aggregate price level.
C)can influence output but at the cost of higher inflation.
D)are primarily driven by changes in investment.
E)Both a and c

Answer 3

E

Question 4

Both Keynesians and real business cycle proponents believe that tax cuts increase output

A)and both agree it does this through increasing aggregate demand.
B)but Keynesians believe it does this through increasing aggregate demand and not aggregate supply.
C)but Keynesians believe it does this through increasing aggregate supply and not aggregate demand.
D)and both agree it does this through increasing aggregate supply.

Question 5

The assumption of constant velocity is a critical component of the

A)monetarist model.
B)classical model.
C)real business cycle model.
D)new classical model.
E)all of the above.

Question 6

Discuss the slope of the aggregate supply curve in the majors models discussed in the previous chapters.Why are they shaped as they are? What shifts aggregate supply in these models?

Question 7

The classically-based models (classical,new classical,monetarist,real business cycle)all agree that

A)markets always clear.
B)monetary policy can affect output in the short-run but not the long-run.
C)changes in aggregate drive most changes in output.
D)stabilization policy is ineffective.
E)None of the above

Question 8

Which of the following models argue that active stabilization policy can be beneficial?

A)The classicists
B)The new classicists
C)The monetarists
D)The real business cycle theorists
E)None of the above

Question 9

During the 1990s,investment expanded quite rapidly and stock prices rose dramatically.How do you think a classical/real business cycle proponent would explain this boom? How would a Keynesian/new Keynesian explain this boom?

Question 10

Why are disagreements among the various schools of macroeconomic thought long-lasting and difficult to resolve?

Question 11

Which of the following statements is correct?

A)In both the Keynesian and classical systems,aggregate demand is an important determinant of output and employment
B)In classical and monetarist models,money is the primary factor determining changes in aggregate demand.
C)Aggregate demand in the Keynesian model is determined entirely by the quantity of money,whereas in the classical model,money is one of several factors determining aggregate demand
D)None of the above

Question 12

Compare theories of money demand across classically-based (classical,monetarist,new classical,real business cycle)models and Keynesian-based (Keynesian,IS-LM,new Keynesian)models.

Question 13

What do each of the major modern macroeconomic theories predict will happen to the real wages during recessions? Explain your answer for each model.

Question 14

Which macroeconomic model dominated macroeconomic analysis from the early post-World War II era until the late 1960s?

A)The monetarist model
B)The Keynesian model
C)The classical model
D)The new classical model
E)None of the above

Question 15

Will systematic and,therefore,predictable changes in aggregate demand affect the level of real output in the new classical and monetarist models? How about in the Keynesian model.Explain why or why not.

Question 16

What theories argue that fluctuations in output are determined by aggregate demand? Discuss the role of monetary policy in each of these models.

Question 17

According to the monetarists and new classical economists,

A)only anticipated monetary policy actions will affect output and employment in the short run.
B)only unforeseen monetary policy actions will affect output and employment in the short run.
C)both anticipated and unanticipated monetary policy actions will affect output and employment in the short run.
D)both anticipated and unanticipated monetary policy actions will affect output but not employment in the short run.
E)none of the above.

Question 18

What do each of the major modern macroeconomic theories predict will happen to the price level during recessions? What do they predict will happen to real wages during recessions? Explain your answer for each model.

Question 19

The Keynesian model agrees with monetarists and new classical models about the fact that

A)changes in the money supply drive most changes in aggregate demand.
B)aggregate supply is upward sloping because of differences between actual and expected price levels.
C)changes in aggregate demand drive business cycles.
D)Both b and c
E)None of the above

Question 20

What two theories argue that fluctuations in output are determined by aggregate supply? Discuss the role of monetary policy in each of these models.

Question 21

Which of the following is the most likely cause of a recession according to the real business cycle model?

A)an unanticipated change in the money supply.
B)an increase in taxation,government spending,and regulation.
C)a fall in expected profits.
D)an anticipated change in the money supply.
E)none of the above.

Question 22

Assuming that there is an excess supply of money in the classical model,then

A)a matching excess demand for commodities will lower the aggregate price level.
B)a corresponding excess demand for commodities will drive the aggregate price level up.
C)an equal excess demand for commodities will not affect the price level.
D)None of the above

Question 23

With respect to the demand side,the classical model excludes

A)exogenous changes in investment
B)exogenous changes in government spending.
C)exogenous changes in taxes.
D)exogenous changes in money demand.
E)All of the above

Question 24

The degree to which monetary forces are the cause of aggregate demand instability is the major controversy between

A)classicists and Keynesians.
B)monetarists and new classical economists.
C)real business cycle theorists and classicists.
D)monetarists and Keynesians.
E)None of the above

Question 25

Which of the following statements is (are)correct?

A)There is no fundamental difference between the monetarist and the Keynesian theories regarding whether business cycles are demand-driven or supply-driven.
B)In both the monetarist and Keynesian models,changes in the expected price level play an important role in the position of aggregate supply.
C)In both the monetarist and Keynesian models,the assumption of constant velocity is critical.
D)Both a and b
E)Both a and c

Question 26

Stable velocity of money is crucial component of the

A)monetarist model.
B)Keynesian model.
C)new Keynesian model.
D)IS-LM model.

Question 27

Which of the following is the most likely cause of most recessions according to the Keynesian model?

A)a fall in productivity.
B)an increase in taxation and government spending.
C)a fall in expected profits.
D)a rise in the price of oil.
E)a fall in the money supply.

Question 28

Which of the following models do not believe that there exists a short run tradeoff between higher inflation and lower unemployment?

A)Keynesians
B)monetarists
C)new classical
D)real business cycle
E)none of the above

Question 29

Which of the following statements is (are)correct? In the classical system,

A)aggregate demand is the primary determinate of the natural rate of output and employment.
B)both output and employment are self-adjusting towards the natural rates of output and employment.
C)changes in aggregate supply drives changes in output in the short-run and in the long-run.
D)only output is self-adjusting to the supply-determined full-employment levels.

Question 30

According to the new classical economics,predictable changes in aggregate demand

A)affect the level of real output.
B)will not affect the level of real output.
C)may or may not affect the level of real output.
D)None of the above

Question 31

Which of the following economic theories share(s)the noninterventionist policy conclusions of the original classical theory?

A)The Keynesian theory
B)The monetarist theory
C)The new classicist theory
D)Both b and c
E)All of the above

Question 32

According to the new classical system,an unanticipated increase in the money stock

A)will shift the aggregate supply schedule only.
B)will shift the aggregate demand schedule only.
C)will shift both the aggregate demand and aggregate supply schedules.
D)None of the above

Question 33

In the new classical model,the aggregate supply schedule depends on

A)the expected level of the money stock.
B)the expected price level.
C)the expected values of fiscal policy variables and other possible determinants of aggregate demand.
D)Both a and c
E)All of the above

Question 34

Imperfect information is a critical assumption in the

A)classical model.
B)Keynesian model.
C)monetarist model.
D)new Keynesian model.
E)real business cycle model.

Question 35

Which of the following theories favor(s)a simple money growth rate rule?

A)real business cycle theory
B)The monetarist theory
C)new classical theory
D)All of the above
E)None of the above

Question 36

Which of the following models depicts the role of money as affecting only the price level in the short run?

A)The new classical model
B)The Keynesian model
C)The real business cycle model
D)The monetarist model

Question 37

The aggregate supply curve

A)slopes upward to the right in both the short run and long run according to both the monetarist and Keynesian models.
B)slopes upward to the right in the short run and approaches the vertical classical formulation only in the long run,according to the monetarists and Keynesians.
C)is vertical in both the monetarist and Keynesian models.
D)None of the above

Question 38

Keynesians and monetarists share the belief that

A)recessions are caused by falls in aggregate demand.
B)the demand for money is stable.
C)excess demand is a chronic problem in modern economies.
D)the Federal Reserve is responsible for most recessions.
E)stabilization policy is beneficial.

Question 39

Which of the following schools of thought are policy interventionists favoring activist aggregate demand management to stabilize output and employment?

A)Keynesians
B)Monetarism
C)The new classical economics
D)The classical economics
E)None of the above

Question 40

Which of the following is the most likely cause of most recessions according to the new classical model?

A)a change in the money supply.
B)an increase in taxation and government spending.
C)a fall in expected profits.
D)a rise in the price of oil.
E)an unanticipated change in the money supply.

Question 41

Which of the following statements is correct with respect to the debate between the Keynesians and new classical economists?

A)Each side criticized monetarism
B)The key source of disagreement centered on how people form their expectations.
C)Both models believed that recessions were characterized by falling aggregate demand.
D)Both believed that unanticipated changes in monetary policy could influence output.
E)all of the above.

Question 42

Which of the following is the most likely cause of a recession according to classical and new classical models?

A)government policy.
B)unstable expectations.
C)a fall in expected profits.
D)an anticipated change in the money supply.
E)none of the above.

Question 43

The Keynesian aggregate supply schedule slopes upward because of

A)unstable expectations.
B)inflexible wages and prices.
C)changes in technology.
D)differences between actual and expected price levels.

Question 44

The arguments against the use of active stabilization policy include all of the following except:

A)the responsiveness of voluntary unemployment to changes in GDP.
B)the existence of policy lags.
C)weak macroeconomic forecasting abilities.
D)the possibility of policy errors because of limited information.

Question 45

The classically-based models (classical,new classical,monetarist,real business cycle)all agree that

A)markets always clear.
B)monetary policy can affect output in the short-run but not the long-run.
C)business cycles are temporary.
D)changes in aggregate drive most changes in output.
E)None of the above.

Question 46

According to the new classical economics,changes in monetary policy will only impact GDP if:

A)they impact the price level.
B)they are unpredictable.
C)people have perfect information about these shocks.
D)None of the above.

Question 47

The best argument against monetarists' arguments that steady money growth would prevent fluctuations in inflation and unemployment is that:

A)the government has best control over fiscal policy and should focus on that.
B)large fluctuations in the money supply cannot occur because the supply of money is limited.
C)steady money growth does not necessarily mean steady aggregate demand if velocity is not stable.
D)steady growth in the money supply percents fluctuations in output only if aggregate prices are constant.