Assignment 7- Money Banking and Finance – Flashcards
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Rational expectations are
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based on all relevant information.
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For monetarists the main cause of economic fluctuations is changes in
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inappropriate monetary policy.
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Keynes used the term ?animal spirits? to represent
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volatile investment spending arising from fluctuations in business confidence.
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The Keynesian explanation of the business cycle rests on several concepts, including
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rigid money wage rates (i.e. sticky prices and wages).
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The rational expectations/new classical theory argues that the primary factor leading to business cycles are
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unexpected changes in aggregate demand.
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Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP?
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new classical cycle theory
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One assumption of the new classical model is that
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people make rational expectations about aggregate demand.
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According to the new Keynesian theory
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A) unexpected changes in aggregate demand change real GDP. B) expected changes in aggregate demand change real GDP. C) current and past expectations of the price level determine the money wage rate. D) All of the answers are correct. Answer D
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Real business cycle theory says that the factor leading to the business cycle is changes in
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productivity.
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According to the real business cycle theory, technological change
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happens at an uneven pace.
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Suppose that following an expected decline in the price level, workers immediately renegotiate 11) their money wage rates to match the fall in prices. This behavior is most consistent with
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the new classical cycle theory.
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Economists who believe tax policy has a big effect on employment and potential GDP are called
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supply-siders.
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If a tax cut increases people?s labor supply, then
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tax cuts increase potential GDP.
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If policy is anticipated or expected, the economy moves from ____________ in both the demand-pull inflation model and the recession model.
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A to C
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Income taxes in the United States are automatic stabilizers because
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tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand.
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Which theory fundamentally denies demand-side economic shocks?
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real business cycle theory
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The Employment Act of 1946 states that it is the responsibility of the federal government to
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promote full employment.
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In the equation of exchange, V represents:
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velocity or the turnover of the existing money stock.
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The monetarist school of thought:
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believes that velocity is predictable making monetary policy effective.
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Kenyans believe that velocity is:
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unstable
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Ceteris paribus, if velocity is decreasing, money demand is:
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increasing.
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The monetary rule states that money supply growth should be set equal to the:
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long run growth of real GDP.
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P*Q in the equation of exchange equals:
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nominal GDP.
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The real business cycle theory proposes that::
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aggregate demand shocks do not effect the business cycle.
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If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a:
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liquidity Trap
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As real GDP increases and the economy improves (ceteris paribus) government outlays and expenditures tend to:
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decline
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As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to:
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increase
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Taken to its logical conclusion, the real business cycle theory (and New Classical Theory) proposes that:
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actual GDP always equals potential GDP, making all unemployment voluntary.
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Sticky prices and wages are a property of the__________ school of thought.
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Keynsian
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Adaptive expectations are a property of the__________ school of thought.
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Monetarist
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"If policy is anticipated, there is no short-run? is a property of the__________ school of thought.
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Rational Expectations/ new classical
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?Current economic parameters are determined by past rational expectations? is a property of the__________ school of thought.
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New Keynesian
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The cyclical deficit is the portion of the deficit
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created by fluctuations in real GDP.
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According to the Ricardo-Barro effect,
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households increase their personal saving when governments run budget deficits.
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If the natural unemployment rate increases, then the long-run Phillips curve ________ and the short-run Phillips curve ________.
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shifts rightward; shifts rightward
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If the Fed wants to increase the quantity of money, it can
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purchase U.S. government securities
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The lag that describes the length of time from when an economy enters a recession and when policy makers become aware of the recession is:
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Recognition lag
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Suppose that M = 300, P = 150, and Y = 6. Then the velocity of circulation equals
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3.0
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When the velocity of circulation equals 4 in 2010, this fact means that
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on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010.
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The structural surplus
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is the government budget surplus that would exist if the economy was at potential GDP
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Which of the following is true?
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A) Aggregate supply is ?passive? in the Keynesian IS-LM model. B) Aggregate demand is ?passive? in the real business cycle theory. C) Keynesian economics is focused on aggregate demand. D) Classical economics is focused on aggregate supply. E) All of the answers are true Answer: E all true
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The true believers of the New Classical theories hold to which of the following?
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A) All unemployment is voluntary. B) Actual GDP always equals potential GDP. C) Government public assistance programs such as unemployment insurance programs make unemployment worse and should be eliminated. D) Aggregate supply is ?passive? in the Keynesian IS-LM model. E) All of the answers are true. Answer E all true
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The system that measures the lifetime tax burden and benefits of each generation is called
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generational accounting
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Say?s Law: Supply creates its own demand; implies there cannot be insufficient aggregate demand or demand caused recessions.
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T
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Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-caused recessions.
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TS
