question

T/F: Say's Law: Supply creates its own demand; implies there cannot be insufficient aggregate demand or demand caused recessions

answer

True

question

Fiscal policy

answer

involves changing taxes and government spending

question

In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SRAS curve shifts ________ (steps B to C).

answer

rightward; left ward

question

An decrease in the input prices (such as the money wage) ceteris paribus:

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increases the short-run aggregate supply

question

What caused the stagflation of the 1970s?

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1979 oil shock collapse of the Bretton-Woods fixed exchange rate system sharp increase in agriculture prices

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Rational expectations are

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based on all relevant information.

question

Suppose that following an expected decline in the price level, workers immediately renegotiate their money wage rates to match the fall in prices. This behavior is most consistent with

answer

the new classical cycle theory.

question

If the economy is on the negative slope of the Laffer curve and you raise taxes:

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tax revenues will fall.

question

Which of the following is true?

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Keynesian economics is focused on aggregate demand. Classical economics is focused on aggregate supply. Aggregate supply is "passive" in the Keynesian model.

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Which of the following could start a demand-pull inflation?

answer

an increase in government expenditures

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

Adaptive expectations are a property of the__________ school of thought.

answer

monetarist

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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

answer

liquidity trap

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The real business cycle theory asserts that changes in ________ lead to changes in ________.

answer

technology; productivity

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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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According to the new Keynesian theory

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unexpected changes in aggregate demand change real GDP. expected changes in aggregate demand change real GDP. current and past expectations of the price level determine the money wage rate.

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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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Sticky prices and wages are a property of the__________ school of thought.

answer

Sticky prices and wages are a property of the__________ school of thought.

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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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"If policy is anticipated, there is no short-run" is a property of the__________ school of thought.

answer

rational expectations/new classical

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Supply side economists focus policy change by lowering the :

answer

highest (i.e. marginal tax rates).

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For monetarists the main cause of economic fluctuations is changes in

answer

inappropriate monetary policy.

question

T/F: Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-caused recessions

answer

True

question

The Keynesian explanation of the business cycle rests on several concepts, including

answer

rigid money wage rates (i.e. sticky prices and wages).

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Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in:

answer

quality and quantity of other inputs. quantity of capital (physical capital and human capital). quantity of labor. technology.

question

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 of the following is a criticism of real business cycle theory?

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Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand.

question

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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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

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One reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that:

answer

it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy).

question

The supply side school of thought proposed:

answer

cutting the (top) marginal tax rates. cutting government regulation. cutting the size of government.

question

According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________

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increase; decrease

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One assumption of the new classical model is that

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people make rational expectations about aggregate demand.

question

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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As real GDP increases and the economy improves (ceteris paribus) government outlays and expenditures tend to:

answer

decline.

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According to the real business cycle theory, technological change

answer

happens at an uneven pace.

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As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to

answer

increase.

question

The forces that generate economic growth are those that shift the

answer

long-run aggregate supply curve rightward

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Economists who believe tax policy has a big effect on employment and potential GDP are called

answer

supply-siders

question

The cyclical deficit is the portion of the deficit

answer

created by fluctuations in real GDP

question

The short-run aggregate supply curve is upward sloping because in the short run the

answer

price level changes but the money wage rate (or other input prices) does not.

question

According to the Ricardo-Barro effect

answer

households increase their personal saving when governments run budget deficits.

question

The real business cycle (RBC) theory assets that the impact on real GDP of technological change is

answer

usually positive but occasionally negative

question

By itself, an increase in aggregate demand increases GDP by the least amount (or zero) in the ________.

answer

real business cycle theory

question

The real business cycle theory proposes that

answer

aggregate demand shocks do not effect the business cycle

question

Which theory fundamentally denies demand-side economic shocks?

answer

real business cycle theory

question

Demand-pull inflation persists because of

answer

continuing increases in the quantity of money.

question

Real business cycle theory says that the factor leading to the business cycle is changes in

answer

productivity

question

If a tax cut increases people's labor supply, then

answer

tax cuts increase potential GDP

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