Assignment 7- Money Banking and Finance – Flashcards

Unlock all answers in this set

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