Deck 17: The Future of Macroeconomics

Question 1

The questions with which Chapter 17 is concerned include each of the following except

A) how might the macroeconomics taught two decades from now differ from the macroeconomics taught today?
B) what have been the principal changes in the way macroeconomics is taught over the past quarter century?
C) what additional changes took place in the twenty years before that - from roughly 1960 to roughly 1980?
D) what direction will macroeconomics take if the nominal business cycle research program is successful?

Answer 1

what direction will macroeconomics take if the nominal business cycle research program is successful?

Question 2

The questions with which Chapter 17 is concerned include each of the following except

A) how might the macroeconomics taught two decades from now differ from the macroeconomics taught today?
B) what have been the principal changes in the way macroeconomics is taught over the past quarter century?
C) what additional changes took place in the hundred years before that - from roughly 1880 to roughly 1980?
D) what direction will macroeconomics take if the real business cycle research program is successful?

Answer 2

what additional changes took place in the hundred years before that - from roughly 1880 to roughly 1980?

Question 3

The questions with which Chapter 17 is concerned include each of the following except

A) how might the macroeconomics taught two decades from now differ from the macroeconomics taught today?
B) what have been the principal changes in the way microeconomics is taught over the past quarter century?
C) what direction will macroeconomics take if the new Keynesian research program proves more successful?
D) how will economists in the future understand the foundations behind the power of monetary policy?

Answer 3

what have been the principal changes in the way microeconomics is taught over the past quarter century?

Question 4

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

A) the role of expectations of future profits in determining investment.
B) the volatility of expectations of future profits.
C) the government should take control of production and employment.
D) the multiplier process.

Question 5

Each of the following was emphasized in John Maynard Keynes's 1936 book The General Theory of Employment, Interest, and Money except

A) the role of expectations of future profits in determining investment.
B) the volatility of expectations of consumers.
C) the power of the government to affect the economy through fiscal and monetary policy.
D) the multiplier process.

Question 6

Each of the following would have been found in a macroeconomics textbook in 1960 except

A) a discussion of the multiplier.
B) the consumption function.
C) the relationship between interest rates and the money supply.
D) the relationship between production and inflation.

Question 7

Each of the following would have been found in a macroeconomics textbook in 1960 except

A) a full discussion of expectations.
B) the investment function.
C) a discussion of the fixed-price short run model.
D) a discussion of the multiplier.

Question 8

Each of the following would have been found in a macroeconomics textbook in 1960 except

A) the Solow growth model.
B) much discussion of monetary policy and a downplaying of fiscal policy.
C) the consumption function.
D) the multiplier.

Question 9

Each of the following was part of Milton Friedman's critique of the dominant tradition in macroeconomics in the 1960s except

A) then-standard models greatly overestimated the government's ability to manage and control the economy.
B) then-standard models greatly overestimated the power of fiscal policy and greatly underestimated the power of monetary policy.
C) then-standard models greatly underestimated the degree of fixed prices.
D) the measurement of the money supply told you most of what you needed to know about how economic policy was working.

Question 10

Each of the following was part of Milton Friedman's critique of the dominant tradition in macroeconomics in the 1960s except

A) then-standard models greatly overestimated the government's ability to manage and control the
Economy.
B) then-standard models greatly underestimated the power of fiscal policy and greatly overestimated the power of monetary policy.
C) then-standard models neglected the role of expected inflation and its role in positioning the Phillips curve.
D) the measurement of the money supply told you most of what you needed to know about how economic policy was working.

Question 11

Macroeconomists in the early 1960s

A) tended to think that the short-run Phillips curve was fixed and that aggregate demand could be increased without causing the Phillips curve to shift to the right.
B) tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the right.
C) tended to think that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the left.
D) tended to think that supply created its own demand.

Question 12

The Milton Friedman - Edmund Phelps analysis of the Phillips curve

A) emphasized that it was fixed and that aggregate demand could be increased without causing the Phillips curve to shift to the right.
B) emphasized that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the right.
C) emphasized that an increase in aggregate demand would eventually cause expected inflation to increase, which would shift the Phillips curve to the left.
D) emphasized that an increase in unemployment would eventually cause expected inflation to increase, which would shift the Phillips curve to the right.

Question 13

The rational expectations macroeconomists

A) argued that Keynesian economics analysis of expectations was correct.
B) argued that Keynesian economics emphasis on fiscal policy was correct.
C) argued that Keynesian economics emphasis on monetary policy was correct.
D) argued that Keynesian economics had failed to think through the importance of expectations.

Question 14

Economists working in both Keynesian and monetarist traditions believe each of the following is a key element in understanding business cycles except

A) the need to understand the determinants of nominal aggregate demand.
B) the need to understand the division of changes in nominal aggregate demand into changes in production (and employment) and changes in prices (inflation or deflation).
C) real fundamentals effectively determine the values of real quantities like GDP even in the short run.
D) the need to understand the velocity of money, the determinants of investment spending, the multiplier, . crowding out, the natural rate of unemployment, the rate of expected inflation, and the Phillips curve.

Question 15

Real business cycle theorists believe that the key to understanding business cycles is

A) the need to understand the determinants of nominal aggregate demand.
B) the need to understand the division of changes in nominal aggregate demand into changes in production . (and employment) and changes in prices (inflation or deflation).
C) that the same theory that determines what happens in the long run should also be applied to explain fluctuations in the short run.
D) the need to understand the velocity of money, the determinants of investment spending, the multiplier, . crowding out, the natural rate of unemployment, the rate of expected inflation, and the Phillips curve.

Question 16

Real business cycle theorists strongly believe in the classical dichotomy:

A) real fundamentals effectively determine the values of real quantities like GDP even in the short run, and nominal variables (like the money stock) determine the values of nominal quantities (like the price level).
B) nominal fundamentals effectively determine the values of nominal quantities like GDP even in the short run, and real variables (like the money stock) determine the values of real quantities (like the price level).
C) real fundamentals effectively determine the values of real quantities like (like the price level) even in the short run, and nominal variables (like the money stock) determine the values of nominal quantities (like GDP).
D) demand creates its own supply.

Question 17

Whether you think that real business cycle theory is promising depends on answers to each of the following questions except

A) should the fact that a reduction in work hours shows up as some people becoming wholly unemployed change one's interpretation of what causes a decline in total hours worked?
B) should the fact that many wages and prices are not flexible lead one to assign a prominent role to monetary factors as causes of real fluctuations in output and employment?
C) how large are "technology" shocks to the economy?
D) how large are "demand" shocks to the economy?

Question 18

According to real business cycle theorists, the incentive to work hard now depends on each of the following except

A) the wage now.
B) the real exchange rate.
C) the wage expected in the future.
D) the real interest rate.

Question 19

According to real business cycle theorists, hours worked will increase

A) if the current wage increases relative to the future wage.
B) if the future wage increases relative to the current wage.
C) if the real interest rate decreases.
D) if labor becomes relatively unproductive.

Question 20

According to real business cycle theorists, hours worked will decrease

A) if the current wage increases relative to the future wage.
B) if the future wage increases relative to the current wage.
C) if the real interest rate increases.
D) if highly valuable investment opportunities become more plentiful.

Question 21

According to real business cycle theorists, each of the following is a reason why hours worked would increase except

A) the current wage increases relative to the future wage.
B) the future wage increases relative to the current wage.
C) the real interest rate increases.
D) highly valuable investment opportunities become more plentiful.

Question 22

According to real business cycle theorists, each of the following is a reason why hours worked would increase except

A) the current wage increases relative to the future wage.
B) labor becomes more productive.
C) the real interest rate decreases.
D) highly valuable investment opportunities become more plentiful.

Question 23

According to real business cycle theorists, each of the following is a reason why hours worked would decrease except

A) the current wage increases relative to the future wage.
B) the future wage increases relative to the current wage.
C) the real interest rate decreases.
D) highly valuable investment opportunities become more scarce.

Question 24

According to real business cycle theorists, each of the following is a reason why hours worked would decrease except

A) labor becomes less productive.
B) the future wage increases relative to the current wage.
C) the real interest rate decreases.
D) highly valuable investment opportunities become more plentiful.

Question 25

Critics of real business cycle theory point out each of the following as problems except

A) in the economy as a whole, total work hours decrease because some people become unemployed, not because most individuals work less hours.
B) in the economy as a whole, total work hours decrease because most individuals work less hours, not because some people become unemployed.
C) the unemployment rate fluctuates substantially over the business cycle.
D) high unemployment in a recession is not a market-clearing phenomenon.

Question 26

According to real business cycle theorists,

A) production fluctuates because of aggregate demand shocks.
B) production fluctuates because of inadequate monetary policy.
C) production fluctuates because of the changing value of output and the changing productivity of the economy.
D) production fluctuates because of international shocks.

Question 27

According to real business cycle theorists, each of the following is an explanation as to why production increases except

A) an improvement in production technology.
B) a unique opportunity for investment.
C) an increase in the value of output.
D) an expansionary fiscal policy.

Question 28

According to real business cycle theorists, each of the following is an explanation as to why production decreases except

A) a reduction in production technology.
B) lack of investment opportunities.
C) a decrease in the value of output.
D) a contractionary fiscal policy.

Question 29

Critics of real business cycle theory have problems with the claim that the economy experiences

A) large negative shocks to productivity.
B) large negative shocks to aggregate demand.
C) large negative shocks to consumption spending.
D) contractionary fiscal policy.

Question 30

Real business cycle theorists tend to argue that

A) monetary policy has a large impact on production and employment.
B) fluctuations in the money stock and interest rates are much more reactions to changes already taking . place in output and employment.
C) fiscal policy has a large impact on production and employment.
D) changes in consumption spending is the key to fluctuations in production and employment.

Question 31

Real business cycle theorists tend to argue that

A) fiscal policy has a large impact on production and employment.
B) fluctuations in the money stock and interest rates lead changes in output and employment.
C) monetary policy has little impact on production and employment.
D) changes in consumption spending is the key to fluctuations in production and employment.

Question 32

The existence of real business cycle theory is a call for all economists

A) to spend more time thinking about the determinants of consumption spending fluctuations.
B) to spend more time thinking about the determinants of monetary policy fluctuations.
C) to spend more time thinking about the determinants of international trade fluctuations.
D) to spend more time thinking about the determinants of investment spending fluctuations.

Question 33

The part of modern macroeconomics that is in least satisfactory shape

A) is in the area of aggregate demand.
B) is in the area of aggregate supply.
C) is in the area of international trade.
D) is in the area of inflation.

Question 34

Since at least the 1930s, the mainstream of macroeconomics

A) has attributed the sluggishness of aggregate demand - the fact that the Phillips curve has a slope - to stickiness in wages and prices.
B) has attributed the sluggishness of aggregate supply - the fact that the Phillips curve is vertical - to the flexibility of wages and prices.
C) has attributed the sluggishness of aggregate supply - the fact that the Phillips curve has a slope - to stickiness in wages and prices.
D) has attributed the sluggishness of aggregate demand - the fact that the monetary policy reaction function has a slope - to stickiness in wages and prices.

Question 35

New Keynesian Economics suggests each of the following as a possible explanation for the stickiness in wages and prices except

A) prices do not adjust immediately and completely in the short run because it is costly to change them.
B) a price adjustment or a failure to adjust prices on the part of one firm affects other firms.
C) one firm's best choice for its price depends on the prices that other firms are charging.
D) changing prices does not allow firms to maximize profits.

Question 36

An example of an aggregate demand externality is

A) the costs that aggregate demand changes impose on third parties.
B) as long as total nominal demand is fixed, the economy as a whole benefits more by one firm's reduction in price than that one firm does.
C) as long as total nominal demand is fixed, the economy as a whole is adversely affected by one form's reduction in price than that one firm is.
D) the pollution caused by a chemical factory that is not captured in the costs of the chemicals.

Question 37

In the standard view, fiscal deficits

A) stimulate the economy in the long run as long as the central bank takes action to raise interest rates.
B) stimulate the economy in the long run as long as the central bank does not take action to raise interest rates.
C) stimulate the economy in the short run as long as the central bank takes actions to raise interest rates.
D) stimulate the economy in the short run as long as the central bank does not take action to neutralize the fiscal stimulus.

Question 38

In the standard view, fiscal surpluses

A) contract the economy in the long run unless the central bank takes action to lower interest rates.
B) contract the economy in the long run unless the central bank does not take action to lower interest rates.
C) contract the economy in the short run unless the central bank takes actions to lower interest rates.
D) contract the economy in the short run unless the central bank takes action to raise interest rates.

Question 39

In the standard view, fiscal debts and deficits

A) in the long run crowd out investment and shift the economy to a less favorable long-run steady-state growth path.
B) in the long run crowd out consumption and shift the economy to a less favorable long-run steady-state growth path.
C) in the long run crowd out savings and shift the economy to a less favorable long-run steady-state growth path.
D) in the long run crowd in investment and shift the economy to a more favorable long-run steady-state growth path.

Question 40

According to Ricardian Equivalence

A) the effect of a government spending financed by borrowing should be smaller than the effect of a government spending increase financed by raising taxes.
B) the effect of a government spending financed by borrowing should be larger than the effect of a government spending increase financed by raising taxes.
C) the effect of a government spending financed by borrowing should be the same as the effect of a government spending increase financed by raising taxes.
D) the effect of a government spending financed by borrowing should be smaller than the effect of a government spending increase financed by printing new money.

Question 41

Each of the following is a problem that economists have with Ricardian Equivalence except

A) myopia - perhaps people are not far-sighted enough to fully work out what an increased deficit in the present implies for their future taxes.
B) myopia - perhaps people are not near-sighted enough to fully work out what an increased deficit in the present implies for their future taxes.
C) liquidity constraints - perhaps people can't easily borrow and lend as needed.
D) people are different - those that are the beneficiaries of government spending today may not be the ones who will have to pay the increased taxes in the future.

Question 42

Despite the increased ability of households to borrow

A) consumption spending still increases when the economy goes into a recession.
B) tax revenue still increases when the economy goes into a recession.
C) imports still increases when the economy goes into a recession.
D) consumption spending still decreases when the economy goes into a recession.

Question 43

Each of the following is a reason offered by economists to explain why consumers seem unwilling to borrow to maintain consumption spending during a recession except

A) the typical consumer is impatient and risk averse.
B) current income is a good proxy for permanent income because of the persistence of income changes.
C) the typical consumer is a risk taker.
D) economists should take seriously what psychologists have to say about how humans reason.

Question 44

Monetary policy could become less powerful in the future for each of the following reasons except

A) deposits at commercial banks become more important in the future.
B) deposits at commercial banks decrease in the future.
C) people decrease their usage of reserve-backed commercial bank deposits as transactions balances.
D) more and more transactions are carried out by credit cards and debit cards.