Question 1

During the 1970s when the U.S.experienced rising inflation and unemployment, economists began to reconsider the significance of aggregate supply as well.

Accepted Answer

This statement is true. During the 1970s, the U.S. experienced a phenomenon known as stagflation, which involved a combination of high inflation and high unemployment. This led economists to reevaluate the role of aggregate supply in the economy, as it had previously been believed that there was a trade-off between inflation and unemployment known as the Phillips Curve.

Question 2

Throughout the 1960s U.S.policymakers adopted stimulative monetary and fiscal policies.

Accepted Answer

The 1960s were marked by the adoption of expansive monetary and fiscal policies by the U.S. government to support economic growth and development.

Question 3

Keynesian economics was mostly concerned with the short run.

Accepted Answer

Keynesian economics focused on the short-run and believed that government intervention in the economy could help improve economic conditions during periods of recession or low growth.

Question 4

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

The answer of The events of the 1980s and early...

Question 5

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

Accepted Answer

This is true. The classical school of thought in economics was primarily concerned with explaining the long-term trends and potential output of an economy, focusing on factors such as technology, population growth, and capital accumulation.

Question 6

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

The rational expectations hypothesis posits that individuals base their expectations about the future on all available information, leading them to take actions that are consistent with those expectations.

Question 7

Monetarists argue that impact lags associated with changes in the money supply are long and variable.

Accepted Answer

Monetarists believe that the impact of changes in the money supply takes time to filter through the economy and can vary depending on a variety of factors, such as the state of the economy, the behavior of consumers and businesses, and the actions of policymakers.

Question 8

While Keynes argued that the Great Depression was caused by government interference in the economy, monetarists contended that it was the result of a decline in investment expenditures.

Accepted Answer

While Keynes did argue against government interference in the economy, he did not believe it was the cause of the Great Depression. Rather, he argued that the government should intervene to stimulate demand and create jobs. Monetarists, on the other hand, focused on the decline in investment expenditures as the root cause of the Great Depression.

Question 9

The experience of the Great Depression led to the widespread acceptance of classical economics.

Accepted Answer

The experience of the Great Depression led to significant criticism of classical economics and the belief that government intervention was necessary to address economic crises. This led to the emergence of Keynesian economics, which provided an alternative to classical economic theory.

Question 10

According to new classical economics, short-run stabilization policy works only if it surprises people.

Accepted Answer

New classical economists believe that people have rational expectations and will adjust their behavior in anticipation of any policy changes. Therefore, if people are not surprised by the policy, they will adjust their expectations and behavior in a way that offsets any short-term effects. To avoid this, policymakers must surprise people with policies that are unexpected and unanticipated.

Question 11

One distinguishing feature of new Keynesian economics (from earlier schools of thought) is the greater use of microeconomic analysis in macroeconomic analysis.

Accepted Answer

New Keynesian economics emphasizes the importance of microeconomic foundations in understanding macroeconomic phenomena, and therefore incorporates microeconomic analysis into macroeconomic models. This is in contrast to earlier Keynesian economics, which generally relied on aggregate demand-supply models without a strong microeconomic basis.

Question 12

Keynes shifted the emphasis in economics from the concept of aggregate supply to the concept of aggregate demand.

Accepted Answer

Keynes believed that aggregate demand was the primary driver of economic activity, and that government intervention through fiscal policy could influence and stabilize it, rather than focusing on the ability of producers to supply goods and services.

Question 13

The rational expectations hypothesis suggests that monetary policy, even though it will affect the aggregate demand curve, might have no effect on real GDP.

Accepted Answer

The rational expectations hypothesis posits that when agents form expectations about future economic variables, they take into account all available information, including the information contained in monetary policy announcements. Therefore, if the central bank announces a monetary policy decision that was already expected by agents, this decision is likely to have no effect on real GDP in the short run. However, if the central bank surprises the public with its decision, it might be able to affect real GDP in the short run through its impact on aggregate demand.

Question 14

Monetarists contend that a consistent relationship exists between changes in the money supply and changes in nominal GDP.

Accepted Answer

Monetarists believe that changes in the money supply have a causal impact on changes in nominal GDP. They advocate for controlling the money supply as a means of achieving economic stability and growth.

Question 15

Supply-side economics is the belief that fiscal policy can be used to stimulate long-run
economic growth.

Accepted Answer

Supply-side economics emphasizes policies that encourage businesses to increase their productivity and investment, leading to long-term economic growth.

Question 16

During the 1960s, Keynesian economic policies led to lower unemployment rates and higher prices.

Accepted Answer

Keynesian economic policies, which prioritized government spending and monetary policies to stimulate demand, did lead to lower unemployment rates during the 1960s. However, they also contributed to higher inflation and higher prices.

Question 17

The monetarist school of economics believes that changes in the money supply are the primary causes of changes in nominal GDP.

Accepted Answer

Monetarists believe that changes in the money supply have a direct and proportional effect on nominal GDP.

Question 18

In the 1970s, the U.S.economy saw sharp changes in real GDP and in the price level.This presented a challenge to policymakers and to economists because these outcomes could not be explained by a Keynesian analysis.

Accepted Answer

The statement is true that the changes in real GDP and price level in the 1970s could not be explained by a Keynesian analysis, leading to a challenge for policymakers and economists to develop new theories and models.

Question 19

The body of economic thought associated with David Ricardo is called new classical
economics.

Accepted Answer

The body of economic thought associated with David Ricardo is called classical economics, not new classical economics. New classical economics is a more recent school of economic thought that emerged in the 1970s.

Question 20

New classical economists believe that the potential output of the economy is stable.

Accepted Answer

The answer of New classical economists believe that the potential...

Quiz 32: Macro a Brief History of Macroeconomic Thought and Policy