Chapter 18Conclusion: Where We Stand
1)The evolution of macroeconomic theory
A)usually precedes and causes major macroeconomic events.
B)usually is in reaction to major macroeconomic events.
C)is evenly divided between causing and reacting to major macroeconomic events.
D)proceeds rather independently of major macroeconomic events.
2)Before the Great Depression, macroeconomic theory was dominated by the ______approach that presumed the essential ______of the private economy.
A)Keynesian, stability
B)Keynesian, instability
C)old classical, stability
D)old classical, instability
3)The old classical macroeconomic was based on an assumption of price and wage ______, and thus an economy that ______.
A)flexibility, promptly self-corrected
B)flexibility, failed to self-correct promptly
C)stickiness, promptly self-corrected
D)stickiness, failed to self-correct promptly
4)The Great Depression of the 1930s opened the door to the ______revolution in macroeconomic theory.
A)Keynesian
B)old classical
C)New Keynesian
D)New classical
5)The Keynesian revolution was based on the assumption of price and wage ______and thus the need for an activist ______policy.
A)flexibility, monetary
B)flexibility, fiscal
C)stickiness, monetary
D)stickiness, fiscal
6)The quantity theory of money idea that velocity is ______link between money growth and nominal GDP growth was ______in the 1930s.
A)a stable, confirmed
B)a stable, disproved
C)an unstable, confirmed
D)an unstable, disproved
7)The ______of the U.S. economy during World War II, with its vast defense spending, ______of Keynesian macroeconomics.
A)continued stagnation, established the supremacy
B)continued stagnation, was the demise
C)rapid recovery, established the supremacy
D)rapid recovery, was the demise
8)In the late 1950s and early 1960s, postwar U.S. economic performance led to the formulation of and belief in a
A)vertical Phillips curve in the short and long runs.
B)vertical Phillips curve in the long run.
C)horizontal Phillips curve in the short and long runs.
D)downward-sloping Phillips curve in the short and long runs.
9)The U.S. economy in the 1960s was dominated by a massively expansionary ______policy that ended up ______.
A)monetary, overstimulating the economy
B)monetary, being impotent in ending the long stagnation of that decade
C)fiscal, overstimulating the economy
D)fiscal, being impotent in ending the long stagnation of that decade
10)The great failure of activist fiscal policy in the 1960s was its
A)timidity in the face of persistent stagnation.
B)over-reliance on tax cuts to the exclusion of government spending programs.
C)delay in reversing course as the economy became overstimulated.
D)limited role as an accommodator of an activist monetary policy.
11)By the end of the 1960s, fiscal activism was falling out of favor due to its long ______lag and, as predicted by the permanent-income hypothesis, the ______of the 1968 tax surcharge.
A)legislative, ineffectiveness
B)legislative, overstimulation
C)effectiveness, ineffectiveness
D)effectiveness, overstimulation
12)An important failure of the "new economics" of the 1960s was its ______monetary policy and its ability if made ______to offset a tighter fiscal policy.
A)denigration of, tighter
B)denigration of, easier
C)overemphasis on, tighter
D)overemphasis on, easier
13)The ______of the 1968 tax surcharge led to the prominence of the developer of the permanent-income hypothesis that predicted it, ______.
A)success, Walter Heller
B)success, Milton Friedman
C)failure, Walter Heller
D)failure, Milton Friedman
14)In the late 1960s, the Friedman-Phelps "natural rate hypothesis" predicted from the microeconomic structure of the labor market that the long-run Phillips curve is ______, while macroeconomic events caused a very ______acceptance of this change in aggregate supply theory.
A)horizontal, rapid
B)horizontal, gradual
C)vertical, rapid
D)vertical, gradual
15)The "new classical" economics took advantage of the disarray and partial eclipse of Keynesian economics to reestablish macro model-building based on the assumption of price ______and market ______.
A)flexibility, clearing
B)flexibility, non-clearing
C)stickiness, clearing
D)stickiness, non-clearing
16)The work of Robert Lucas and Thomas Sargent ______the existence of a downward-sloping Phillips curve in the ______.
A)first proposed, short run
B)first proposed, short and long runs
C)cast further doubt on, long but not short run
D)cast further doubt on, short and long runs
17)Most Keynesian macroeconomists today ______the natural rate hypothesis, which has helped lead to the ______of Keynesian macroeconomics in the 1990s.
A)reject, near-total extinction
B)reject, revival
C)accept, near-total extinction
D)accept, revival
18)The "stagflation" of the 1970s ______Keynesian macroeconomics until the Keynesians started to build the consequences of changing inflationary expectations and ______shocks into their models.
A)reinforced the dominance, supply
B)reinforced the dominance, demand
C)deepened the eclipse, supply
D)deepened the eclipse, demand
19)The tax cuts and entitlement program expansions of the 1980s led to such ______federal deficits in the 1990s that fiscal policy ______for smoothing-out business cycle fluctuations.
A)small, again became the preferred tool
B)small, was all but abandoned
C)large, again became the preferred tool
D)large, was all but abandoned
20)The depth of the 1981-1982 recession caused the Fed to abandon its experiment in targeting ______and move to what now appears to be ______growth rule.
A)money growth, an interest rate
B)money growth, a real GDP growth
C)money growth, an unemployment rate
D)interest rates, a high-powered money growth
E)interest rates, a nominal GDP growth
21)Memory of the supply shocks of the 1970s ______the growth of real-business-cycle theory, while it was being ______by new classical work on model-building methods.
A)assisted, assisted as well
B)assisted, hindered
C)hindered, assisted
D)hindered, hindered as well
22)Two emerging trends in 1990s macroeconomic thinking are that fiscal policy should be designed according to its ______consequences and that monetary aggregates ______useful in the conduct of monetary policy.
A)short-run stabilization, are no longer
B)short-run stabilization, continue to be
C)long-run growth, are no longer
D)long-run growth, continue to be
23)There is currently a resurgence in Keynesian macroeconomics, based on the assumptions of market ______and ______expectations.
A)non-clearing, adaptive
B)non-clearing, rational
C)clearing, adaptive
D)clearing, rational
24)The U.S. inflation of the 1960s was spread overseas via the ______exchange rates of the time and led to the ______of the Bretton Woods system.
A)fixed, collapse
B)fixed, establishment
C)flexible, collapse
D)flexible, establishment
25)Flexible exchange rates, proving to be much ______volatile than economists predicted, have led to ______calls for a return to fixed exchange rates.
A)less, few
B)less, many
C)more, few
D)more, many
26)When did the Fed fail to engage in a pre-emptive strike to keep the economy at or near the natural rate of unemployment?
A)1994
B)1998
C)2001
D)None of the above. The Fed acted in each of these years.
27)The economic expansion which began in March 1991 was unusual in that
A)the first year and a half of the expansion was very weak and unemployment did not peak until 16 months after the trough.
B)the inflation rate decelerated from 1993 to 1997 rather than accelerating.
C)monetary policy was tightened substantially in 1994 even though there was no evidence of accelerating inflation.
D)all of the above.
28)In the 1990s
A)growth of M1 was more stable than growth of nominal GDP, and velocity soared through most of the period.
B)growth of nominal GDP was more stable than growth of M1, and velocity soared through most of the period.
C)growth of M1 was more stable than growth of nominal GDP, and velocity plummeted through most of the period.
D)growth of nominal GDP was more stable than growth of M1, and velocity plummeted through most of the period.
1