ECON 103 Ch. 18 – Flashcards
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Keynesian economics is primarily associated with which of the following concepts
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an activist federal government
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According to Keynesian economics, when the economy is experiencing inflation, he best course of action is to
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reduce government spending or increase taxes
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Which of the following statements would be associated with Keynesian economics?
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Because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy
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You are a strict monetarist given the following information: The money supply is $2,100. The velocity of money is 4.5. The economy is operating at potential GDP. To the nearest dollar, nominal income is: To the nearest dollar, real income is: To the nearest dollar, nominal income if the money supply is double is: To the nearest dollar, real income is:
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$9,450 $9,450 $18,900 $9,450
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The velocity of money can be defined as
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the average number of times a dollar changes hands during the year.
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According to Milton Friedman, when the economy is experiencing inflation, the best course of action is to
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use a monetary rule that accommodates real growth but not inflation
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Which of the following is a true statement about inflation?
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Inflation cannot continue indefinitely without increases in the money supply
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Which of the following statements would be associated with monetarism?
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Because there are significant lags in recognizing and implementing activist policies, the best government policy is nonintervention
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According to new classical economics, when the economy is experiencing inflation, the best course of action is to
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do nothing; the economy will return to equilibrium quickly on its own
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Rational expectations means that
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people know the true model of the economy and use it to form their expectations of the future
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Which of the following statements would be associated with new classical economics?
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Since expectation are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter
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According to Lucas supply function, positive price surprises cause firms to supply more in short run because
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firm are fooled into thinking that relative prices have changed and that they are getting more for their output
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According to real business cycle theory, business cycles exist primarily because of
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shocks to production technology
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According to supply-side economics, when the economy is experiencing unemployment, the best course of action is to
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cut taxes and increase incentives to save and invest
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In the early 1980s, the US economy was experiencing a severe recession. The Economic Recovery Act of 1981 sharply cut both personal and corporate income tax rates. President Reagan argued that there were supply-side tax cuts. Therefore, he believed that the primary effect of these tax cuts would be to
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increase work and investment incentives
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If you were a Keynesian, assuming activist central banks, you might argue that
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increases in the money supply increase the demand, and stimulate the growth of real GDP
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According to Keynesian economics,
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expectations do not adjust quickly, so there can be an impact on output
