Question 1

Inflationary recessions

Accepted Answer

Inflationary recessions have occurred during the 1970s and 1980s, as the combination of high inflation and economic recession led to a challenging economic situation. Conventional monetary and fiscal policies may not be enough to address this type of situation, as inflation can be difficult to control while stimulating economic growth.

Question 2

Rational expectations theory is based on all of the following assumptions,except

Accepted Answer

The assumption that demand creates its own supply is actually part of the Keynesian theory, not the rational expectations theory. The other three assumptions are central to the rational expectations theory.

Question 3

According to the rational expectationists,

Accepted Answer

The answer of According to the rational expectationists,
...

Question 4

Statement I: Inflationary recessions cannot be cured by conventional monetary and fiscal policies.
Statement II: If a recession is ended by strong fiscal policy stimulus,interest rates will tend to rise during recovery.

Accepted Answer

Both statements are true. Statement I is correct because inflationary recessions, characterized by high inflation and economic downturn simultaneously, often prove resistant to traditional monetary and fiscal policies due to the conflicting nature of addressing inflation and stimulating economic growth. Statement II is true because strong fiscal policy stimulus, aimed at ending a recession, typically increases demand in the economy, which can lead to higher interest rates as part of the economic recovery process, reflecting the increased demand for money and credit.

Question 5

According to the classical economists,if the quantity of money that people wanted to save was less than the amount that people wanted to invest,

Accepted Answer

Classical economists argue that if the desire to save exceeds the desire to invest, the surplus of savings would lead to an increase in the interest rate. This is because banks and other financial institutions would have more funds to lend, leading to a competitive market where borrowers are willing to pay higher interest rates for access to the excess savings.

Question 6

The conventional monetary policy to fight recessions would be to

Accepted Answer

To combat recessions, conventional monetary policy involves increasing the rate of monetary growth. This is done to lower interest rates, encourage borrowing and spending, and stimulate economic activity.

Question 7

Statement I: As our economy becomes even more closely integrated into the world economy,macropolicy will become more important.
Statement II: Lower interest rates attract foreign investors,and thus increases the amount of money coming into the country.

Accepted Answer

The answer of Statement I: As our economy becomes even...

Question 8

Who would agree with this statement: We live in an increasingly borderless world,in which international capital flows are rendering traditional monetary policy increasingly obsolete.

Accepted Answer

Kenichi Ohmae is known for his ideas on borderless economies and the increasing importance of international trade, while Marc Levinson has written extensively on the history of international trade and globalization. Both of them would agree with the statement that we live in an increasingly borderless world with international capital flows rendering traditional monetary policy obsolete.

Question 9

If M is 4,000,Q is 2,000,and P = 8,then V

Accepted Answer

The answer of If M is 4,000,Q is 2,000,and P...

Question 10

Which of the following statements is true?

Accepted Answer

Supply Side economists believe that lowering tax rates will stimulate investment and economic growth. Keynesians believe that both consumers and businesses can be unstable in their decision making, and Monetarists prefer rules-based monetary policy rather than discretionary measures. Rational expectationists argue that businesses have a good record of anticipating government policy. Therefore, only choice C is true.

Question 11

Statement I: To fight inflation,slow the rate of monetary growth.
Statement II: To fight inflation,raise the deficit.

Accepted Answer

Statement I is true because when there is less money in circulation, people cannot spend as much, and therefore prices will not rise as quickly. Statement II, on the other hand, is false because increasing the deficit will result in the government borrowing more money, which will increase the money supply and can lead to inflation.

Question 12

The conventional fiscal policy to fight inflation would be to

Accepted Answer

The answer of The conventional fiscal policy to fight inflation...

Question 13

During inflationary recessions

Accepted Answer

During inflationary recessions, neither conventional monetary nor fiscal policy would work. Conventional monetary policy (such as lowering interest rates) would only worsen inflation, while conventional fiscal policy (such as increasing government spending) would only further stimulate the economy and aggravate inflation. Other policies, such as supply-side policies or targeted fiscal policies, may be more effective in managing inflation during a recession.

Question 14

According to the Laffer curve,when very low marginal tax rates are lowered,tax revenue will

Accepted Answer

The Laffer curve suggests that when marginal tax rates are very low, lowering them further will decrease tax revenue because the government collects less money from taxes at these lower rates.

Question 15

The conventional monetary policy to fight inflation would be to

Accepted Answer

To fight inflation, the best choice is to decrease the rate of monetary growth. This will reduce the amount of money available in the economy, making it harder for people to buy goods and services at the previous high prices, which will lead to a decrease in demand and ultimately reduce inflation. Increasing the rate of monetary growth would have the opposite effect, increasing the amount of money available in the economy and potentially exacerbating inflation. Running budget deficits or surpluses may have an impact on inflation, but their effects are indirect and less direct than adjusting monetary policy.

Question 16

If we are in a recession and follow conventional monetary policy,interest rates will ____ and then ____.

Accepted Answer

In a recession, conventional monetary policy aims to lower interest rates to stimulate borrowing and investment. Once the economy starts to recover, interest rates may rise again to prevent overheating and inflation.

Question 17

Each of the following could be used to fight inflation,except

Accepted Answer

Budget deficits tend to stimulate spending and can lead to inflation, while decreasing government spending, raising taxes, and budget surpluses can help to reduce inflation by reducing the amount of money in the economy.

Question 18

Who said this? "International capital flows have made it much more difficult for the central bank to plot the nation's monetary course."

Accepted Answer

Marc Levinson, an economist and financial historian, is the likely author of this statement as it pertains to the challenges faced by central banks in a globalized financial system. John Maynard Keynes, Milton Friedman, Adam Smith, and John Kenneth Galbraith may have touched upon similar topics, but this particular quote cannot be attributed to any of them without additional context.

Question 19

The internationalization of our economy has

Accepted Answer

The answer of The internationalization of our economy has
...

Question 20

Which statement is true?

Accepted Answer

Both monetary and fiscal policy can affect aggregate demand. Monetary policy can influence aggregate demand by changing interest rates, while fiscal policy can affect aggregate demand through government spending and taxation.

Quiz 15: A Century of Economic Theory