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Which of the following does NOT explain why the official chronology of past U.S. business cycles maintained by the National Bureau of Economic Research goes back only to 1854?


A) The further back in time you go, the fewer economic data are available.
B) There may not have been business cycles in the modern sense much before 1854.
C) Before 1854 the U.S. economy was mostly agricultural, and therefore the short-run aggregate supply curve was probably close to vertical.
D) There were no banks before 1854.

E) A) and B)
F) B) and C)

Correct Answer

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Which of the following is a point of the Great Moderation consensus? I. Monetary policy should be the main stabilization policy. II. The central bank should be independent of political influence. III. Discretionary fiscal policy should be used sparingly.


A) I only
B) II only
C) III only
D) I, II, and III

E) A) and D)
F) B) and D)

Correct Answer

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The Great Moderation consensus is the school of thought that monetary policy should be the main tool of stabilization policy and is skeptical about the use of fiscal policy.

A) True
B) False

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Which view of the macro economy holds that since the long-run growth of real GDP is 3%, the money supply should grow at 3%?


A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus

E) None of the above
F) All of the above

Correct Answer

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Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy.

A) True
B) False

Correct Answer

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The recommendation that a decrease in taxes will alleviate a recessionary gap is consistent with _____ macroeconomics.


A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus

E) None of the above
F) C) and D)

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Keynesians believed that the economy could get out of the Great Depression if:


A) monetary policy focused on the use of a monetary rule.
B) fiscal authorities worked at balancing the budget.
C) government spent enough to offset the drop in both consumption and investment spending.
D) expansionary monetary policy was used.

E) B) and D)
F) A) and B)

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Most economists today believe that effective monetary and fiscal policy can limit the fluctuations of the actual unemployment rate around the natural rate, but they are unable to keep unemployment permanently below the natural rate.

A) True
B) False

Correct Answer

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Keynes believed that "animal spirits," or confidence levels, had their greatest impact on:


A) investment spending.
B) government spending.
C) monetary policy officials.
D) the foreign sector.

E) B) and C)
F) None of the above

Correct Answer

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The General Theory of Employment, Interest, and Money is:


A) the first economics textbook of the 1980s.
B) a defense of fiscal policy written by Milton Friedman.
C) an analysis of the Great Depression.
D) an explanation of globalization.

E) B) and D)
F) A) and B)

Correct Answer

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According to the natural rate hypothesis, attempts to keep unemployment below the natural rate will lead to increasing inflation.

A) True
B) False

Correct Answer

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The political business cycle refers to policies that:


A) slow down the economy in election years.
B) keep the economy on a constant growth path.
C) speed the economy up in election years.
D) run surpluses in election years.

E) C) and D)
F) B) and D)

Correct Answer

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Nearly all economists agree that decreases in money supply can _____ aggregate _____.


A) increase; supply
B) decrease; supply
C) decrease; demand
D) increase; demand

E) B) and D)
F) B) and C)

Correct Answer

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In a liquidity trap:


A) fiscal policy becomes ineffective because of the high budget deficit.
B) monetary policy becomes ineffective because the nominal interest rate is close to the zero bound.
C) the aggregate price level becomes downwardly sticky.
D) any increase in government spending drives out planned investment spending.

E) B) and D)
F) None of the above

Correct Answer

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According to Keynesian theory:


A) the long-run and short-run aggregate supply curves are identical.
B) a decrease in aggregate demand leads to decreases in output and prices in the short run.
C) a decrease in aggregate demand will decrease prices but not output in the short run.
D) the short run is relatively unimportant.

E) All of the above
F) None of the above

Correct Answer

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The economic view that reducing tax rates will increase the incentives to work and invest and will ensure a high growth rate of the potential output is known as _____ economics.


A) supply-side
B) demand-side
C) new classical
D) new Keynesian

E) B) and C)
F) A) and D)

Correct Answer

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Friedman favored:


A) activist monetary policy to stabilize the economy.
B) activist fiscal policy coupled with a neutral monetary policy.
C) a monetary policy rule.
D) interest rate targeting.

E) None of the above
F) A) and C)

Correct Answer

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Use the following to answer questions : Figure: Fiscal Policy and the End of the Great Depression Use the following to answer questions : Figure: Fiscal Policy and the End of the Great Depression -(Figure: Fiscal Policy and the End of the Great Depression) Look at the figure Fiscal Policy and the End of the Great Depression. The period from 1936 to 1938 would seem to indicate that in the short run a decrease in government deficit spending can _____ the unemployment rate. A) reduce B) increase C) not affect D) eliminate -(Figure: Fiscal Policy and the End of the Great Depression) Look at the figure Fiscal Policy and the End of the Great Depression. The period from 1936 to 1938 would seem to indicate that in the short run a decrease in government deficit spending can _____ the unemployment rate.


A) reduce
B) increase
C) not affect
D) eliminate

E) C) and D)
F) B) and D)

Correct Answer

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Which of the following is the consensus among most economists today with respect to the management of unemployment?


A) Government can't do anything about it.
B) Expansionary policy can be used to achieve permanently low unemployment.
C) Unemployment cannot be kept below the natural rate.
D) Unemployment cannot be kept anywhere near the natural rate.

E) A) and B)
F) A) and C)

Correct Answer

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During the 1940s, 1950s, and 1960s:


A) the role of the government in the economy increased.
B) the role of the government in the economy decreased.
C) Keynes's ideas were constantly challenged by free-market policies.
D) Keynes's views were accepted only by left-wing socialist economists.

E) C) and D)
F) A) and B)

Correct Answer

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