Question 1

Prior to 1854, the United States was:
A) dominated by the manufacturing sector and was subject to price inflexibility.
B) dominated by the agricultural sector and was subject to price flexibility.
C) plagued by recurrent recessions due to poor government policy.
D) plagued by recurrent inflations due to poor central bank policy.

Accepted Answer

Prior to 1854, the United States was dominated by the agricultural sector and was subject to price flexibility. This was due to the large amount of land available for cultivation and the country's position as a major exporter of agricultural goods. The manufacturing sector was still in its early stages and did not yet have the dominant economic influence it would later come to have.

Question 2

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of classical economics. What would this classical economist recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is in a recession. The...

Question 3

Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.

Accepted Answer

The answer of Explain the rational expectations theory and how...

Question 4

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is under inflationary pressure. The...

Question 5

Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.

Accepted Answer

Purchases and sales of short-term Treasury bills by the Fed is a part of open market operations, which is different from quantitative easing. Quantitative easing involves larger scale purchases of longer-term securities like bonds to increase the money supply and encourage economic activity.

Question 6

The purpose of quantitative easing is to drive down long-term interest rates, which are usually more important for private investment spending than short-term rates.

Accepted Answer

Quantitative easing involves buying long-term assets such as government bonds, with the aim of increasing the demand for these assets and driving down their yields (i.e. interest rates). The idea is that lower long-term rates will encourage more borrowing and investment by individuals and businesses, which in turn can stimulate economic growth. Short-term rates, on the other hand, are typically set by central banks and are less affected by quantitative easing measures.

Question 7

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is in a recession. The...

Question 8

Classical economists believed that wages and prices were _____, and as a result, the aggregate _____ curve was vertical.
A) inflexible; supply
B) inflexible; demand
C) flexible; demand
D) flexible; supply

Accepted Answer

The answer of Classical economists believed that wages and prices...

Question 9

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is in a recession. The...

Question 10

The economy is in a recession. The head economist at the central bank is concerned about the growing possibility of a liquidity trap. The head of the President's Council of Economic Advisers is an ardent Keynesian. What will this Keynesian economist recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is in a recession. The...

Question 11

Classical economists believe that:
A) monetary policy is not useful in fighting recessions.
B) discretionary fiscal policies are useful for dampening business cycle fluctuations.
C) rational expectations are held by most of the public.
D) short-run goals are more important than long-run goals.

Accepted Answer

The answer of Classical economists believe that:
A) monetary policy is...

Question 12

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

Accepted Answer

The Ricardian equivalence argument suggests that households and businesses recognize that an increase in government spending will likely lead to higher future taxes to finance that spending. As a result, they may reduce their current consumption and investment in anticipation of those future tax hikes.

Question 13

The economy is booming and under inflationary pressure. There is also a budget surplus. The head of the President's Council of Economic Advisers is a proponent of classical economics. What will this classical economist recommend or not recommend? Will she advocate balancing the budget? Explain.

Accepted Answer

The answer of The economy is booming and under inflationary...

Question 14

An economy that is primarily agricultural will have a _____ aggregate _____ curve.
A) horizontal; supply
B) nearly vertical; supply
C) horizontal; demand
D) nearly vertical; demand

Accepted Answer

An economy that is primarily agricultural will have a nearly vertical aggregate supply curve because the availability of land and climate play a significant role in determining the amount of output that can be produced. Therefore, the supply of agricultural products is relatively fixed in the short-run, and changes in demand will mainly affect prices rather than the quantity supplied.

Question 15

Why did the adoption of Keynesian economics come out of the Great Depression?

Accepted Answer

The answer of Why did the adoption of Keynesian economics...

Question 16

The economy is in a recession. The head of the President's Council of Economic Advisers is a student of economic history, and his philosophy tends to follow the Great Moderation consensus. What will this economist recommend or not recommend? Explain.

Accepted Answer

The answer of The economy is in a recession. The...

Question 17

Classical economists believe that:
A) the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is horizontal.
B) fiscal policy changes are best at controlling the business cycle.
C) increases in the money supply will increase output.
D) prices are flexible.

Accepted Answer

Classical economists believe in the flexibility of prices, meaning that prices will eventually adjust to clear markets and that there is no need for government intervention in the economy. This belief is based on the assumption of a free-market system and rational behavior of economic agents. Classical economists also believe that the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is upward sloping. They do not believe that fiscal policy changes are effective in controlling the business cycle, and they do not necessarily believe that increases in the money supply will increase output.

Question 18

Those who believe in the classical model suggest that expansionary policies would result in:
A) increases in output and the aggregate price level.
B) increases in output with no change in the aggregate price level.
C) increases in the aggregate price level with no change in output.
D) increases in unemployment and the output level.

Accepted Answer

The answer of Those who believe in the classical model...

Question 19

Prior to the Great Depression, many policy makers:
A) believed activist policies were important to the well-being of an economy.
B) focused on short-run economic problems.
C) believed that long-run economic performance was the most important goal.
D) believed economies always performed below their potential output level.

Accepted Answer

The answer of Prior to the Great Depression, many policy...

Question 20

Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.

Accepted Answer

The answer of Prior to the 1930s, classical economics was...

Quiz 30: Macroeconomics- Events and Ideas

Prior to 1854, the United States was:

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of classical economics. What would this classical economist recommend or not recommend? Explain.

Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.

The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.

Purchases and sales of short-term Treasury bills by the Fed is called quantitative easing.

The purpose of quantitative easing is to drive down long-term interest rates, which are usually more important for private investment spending than short-term rates.

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent monetarist. What will this monetarist recommend or not recommend? Explain.

Classical economists believed that wages and prices were _, and as a result, the aggregate _ curve was vertical.

The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.

The economy is in a recession. The head economist at the central bank is concerned about the growing possibility of a liquidity trap. The head of the President's Council of Economic Advisers is an ardent Keynesian. What will this Keynesian economist recommend or not recommend? Explain.

Classical economists believe that:

The Ricardian equivalence argument says that households and businesses view any increase in government spending as a sign that tax burdens will increase in the future, which will cause a decrease in private spending in anticipation of higher future taxes.

The economy is booming and under inflationary pressure. There is also a budget surplus. The head of the President's Council of Economic Advisers is a proponent of classical economics. What will this classical economist recommend or not recommend? Will she advocate balancing the budget? Explain.

An economy that is primarily agricultural will have a _ aggregate _ curve.

Why did the adoption of Keynesian economics come out of the Great Depression?

The economy is in a recession. The head of the President's Council of Economic Advisers is a student of economic history, and his philosophy tends to follow the Great Moderation consensus. What will this economist recommend or not recommend? Explain.

Classical economists believe that:

Those who believe in the classical model suggest that expansionary policies would result in:

Prior to the Great Depression, many policy makers:

Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.