Econ assignment 10 – Flashcards

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T/F: Say's Law: Supply creates its own demand; implies there cannot be insufficient aggregate demand or demand caused recessions
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True
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Fiscal policy
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involves changing taxes and government spending
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In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SRAS curve shifts ________ (steps B to C).
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rightward; left ward
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An decrease in the input prices (such as the money wage) ceteris paribus:
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increases the short-run aggregate supply
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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.
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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
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the new classical cycle theory.
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If the economy is on the negative slope of the Laffer curve and you raise taxes:
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tax revenues will fall.
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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?
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an increase in government expenditures
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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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Adaptive expectations are a property of the__________ school of thought.
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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
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liquidity trap
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The real business cycle theory asserts that changes in ________ lead to changes in ________.
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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.
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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.
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rational expectations/new classical
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Supply side economists focus policy change by lowering the :
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highest (i.e. marginal tax rates).
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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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T/F: Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-caused recessions
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True
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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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Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in:
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quality and quantity of other inputs. quantity of capital (physical capital and human capital). quantity of labor. technology.
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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 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.
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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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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 reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that:
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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).
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The supply side school of thought proposed:
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cutting the (top) marginal tax rates. cutting government regulation. cutting the size of government.
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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.
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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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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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According to the real business cycle theory, technological change
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happens at an uneven pace.
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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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The forces that generate economic growth are those that shift the
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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
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supply-siders
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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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The short-run aggregate supply curve is upward sloping because in the short run the
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price level changes but the money wage rate (or other input prices) does not.
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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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The real business cycle (RBC) theory assets that the impact on real GDP of technological change is
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usually positive but occasionally negative
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By itself, an increase in aggregate demand increases GDP by the least amount (or zero) in the ________.
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real business cycle theory
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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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Which theory fundamentally denies demand-side economic shocks?
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real business cycle theory
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Demand-pull inflation persists because of
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continuing increases in the quantity of money.
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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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If a tax cut increases people's labor supply, then
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tax cuts increase potential GDP
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