In its simplest form, Keynesian theory views the aggregate supply curve as being:
In its simplest form, Keynesian theory holds that a decline in aggregate demand will:
reduce output and employment but not the price level.
In classical theory a decline in aggregate demand will:
reduce the price level, but not the levels of output and employment.
The classical aggregate supply curve suggests that:
real output is unrelated to the price level.
Classical theory is best portrayed by:
Keynesian theory is best portrayed by:
Economist Milton Friedman is most closely associated with:
The intellectual roots of monetarism are based on:
According to monetarists:
changes in the money supply are the primary cause of changes in the price level.
The equation of exchange indicates that:
MV = PQ.
The velocity of money is the:
number of times per year the average dollar is spent on final goods and services.
At the equilibrium level of GDP:
MV = nominal Ca + Ig + Xn + G.
Most monetarists would say that:
all of the above are true.
Monetarists say that the relationship between the amount of money which households and businesses want to hold and the level of national output and income:
is relatively stable.
a change in the money supply will change aggregate demand and therefore the nominal GDP.
Monetarists believe the private economy is inherently:
stable and that the government sector should be small.
According to monetarists, a change in the money supply changes:
aggregate demand which in turn changes the nominal GDP.
According to monetarists, the Great Depression in the United States largely resulted from:
inappropriate monetary policy.
The real-business-cycle theory holds that business fluctuations are caused by:
significant changes in technology and resource availability.
According to real business cycle theory:
recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand.
Refer to the diagram. A decline of aggregate supply from ASLR1 to ASLR2, followed by a decline of aggregate demand from AD1 to AD2, would best describe the:
real-business-cycle view of recession.
The real-business cycle view of recession would best be described by:
a decrease in aggregate supply from ASLR1 to ASLR2, followed by a decrease in aggregate demand from AD1 to AD2
A coordination failure:
is a self-fulfilling prophesy.
Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will:
move the economy directly from a to c.
Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will:
move the economy directly from c to A
Suppose that, as expected, aggregate demand declines from AD2 to AD1. A direct move of the economy from c to a would best reflect:
new classical economics.
the economy initially is in equilibrium at point a. Suppose the aggregate demand declines from AD1 to AD2 and the economy moves from a to c In the mainstream view, the resulting decline in the price level need not shift the short-run aggregate supply curve from AS1 to AS2 because
:nominal wages are (at least for a time) inflexible downward.
The traditional monetary rule is the idea that:
the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP.
Suppose that the increase of aggregate supply from AS1 to AS2 indicates the economy's average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by:
30 percent per year.
Monetarists and rational expectations theorists generally agree that:
the Federal Reserve should adhere to a monetary rule.
The crowding-out effect refers to the possibility that:
deficit financing will increase the interest rate and reduce investment.
According to monetarists, an expansionary fiscal policy is a weak stabilization tool because:
government borrowing to finance a deficit will raise the interest rate and reduce private investment.
Which of the following groups of economists is most likely to favor annually balanced Federal budgets?
Rational expectations economists.
The view that excessive growth of the money supply over long periods leads to inflation:
had been absorbed into the mainstream of macroeconomics.
Modern mainstream macroeconomists agree with the monetarists that:
backseat car passenger (the Fed) who occasionally leans over the front seat and abruptly jerks the steering wheel to the left or to the right."money matters" in the macroeconomy.
According to economist Milton Friedman (b. 1912), the source of instability in the economy could be thought of as a:
backseat car passenger (the Fed) who occasionally leans over the front seat and abruptly jerks the steering wheel to the left or to the right.
Suppose that real GDP falls to 2 percent below potential GDP. The, according to the Taylor rule, the Fed should reduce the Federal funds, relative to the current rate of inflation, by:
1 percentage point.
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