Macro HW 14

because of sticky prices and wages, changes in total spending have the biggest impact on output and employment

According to Keynesian theory,

the economy can achieve full employment on its own, though there could be temporary periods in which employment falls below the natural level.

A fundamental feature of early classical macroeconomics is that

interest rates

A liquidity trap is said to exist when a change in monetary policy has no effect on

countercyclical monetary and fiscal policies can be used to achieve full employment

A policy implication of Keynesian economics is that

unanticipated price changes affect real wages in the short run but workers will rectify this over time

According to Milton Friedman, any divergence in unemployment from its natural rate is temporary because

Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy

An important distinction between the classical and Keynes's view of the economy is that

Monetarism

Milton Friedman is a leader and major proponent of

the Federal Reserve System should institute a prescribed rate of growth in the money supply

Monetarists argue that

lower; budget deficit; budget surplus

During a contraction, ______ income tax revenues tend to automatically increase a ______ or reduce a _________.

contractionary monetary policy

If inflation is a threat, the Fed is likely to engage in

increase; increase

If the Fed purchases federal government bonds on the open market, bank reserves will ____, leading to a(n) _______ in the money supply.

a decrease in the price level and employment

If the economy's short-run aggregate supply curve is upward sloping, a decrease in aggregate demand will cause

an implementation lag

In 1963, President Kennedy proposed a tax cut to stimulate the economy. In 1963, Congress approved the tax cut. The one-year period between these two events is attributed to

for purposes other than economic stabilization

In the United States, most of the government's taxing and spending is

using monetary policy will change real GDP only if the policy takes people by surprise

In the new classical view,

Which of the following is true about new Keynesian economics?

It incorporates monetarist ideas about the importance of monetary policy. It incorporates new classical ideas about the importance of aggregate supply. It includes a greater use of microeconomic analysis in macroeconomic analysis than Keynesian economics

Automatic stabilizer

It refers to any government program that tends to reduce fluctuations in GDP automatically.

stickiness in wages and prices could block adjustments to full employment

John Maynard Keynes argued that...

from the concept of aggregate supply to the concept of aggregate demand.

Keynes shifted the emphasis in economics...

short run

Keynesian economics was mostly concerned with

the greater use of microeconomic analysis in macroeconomic analysis

One distinguishing feature of new Keynesian economics (from earlier schools of thought) is

transfer payments

Payments to households that do not require anything in exchange are called Medicaid, welfare payments, and Temporary Assistance to Needy Families are classified as

tax cuts to stimulate short-run aggregate supply

Supply-side economics is the school of thought that advocates the use of

increases real GDP and aggravates inflation

Suppose the U.S. economy experiences stagflation. An expansionary fiscal policy...

payroll taxes

Taxes assessed on firms and employees on wages and salaries earned are called

John Maynard Keynes

The General Theory of Employment, Interest, and Money was written by

personal income tax and from payroll taxes

The bulk of federal receipts come from

the long-run forces that determined an economy's potential level of output

The classical school focused on

classical economists, monetarists, and new classical economists

Which of the following groups of economists perceive the economy as essentially stable and self-correcting?

the impact lag

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

its total revenues are equal to its total expenditures

The government has a balanced budget if

grows when the government runs a deficit

The national debt

respond to conditions expected to exist in the future

The problem of lags suggests that monetary policy should...

people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts

The rational expectations hypothesis suggests that

implementation lag

The shortest time lag for monetary policy is

national debt

The sum of all past federal deficits minus any surpluses is called the

Keynesian economics

The theory that argues most strongly for countercyclical policy activism is

stimulative monetary and fiscal policies

Throughout the 1960s U.S. policymakers adopted

fall during expansionary periods and rise during recessionary periods

Transfer payments typically

During the Kennedy administration

When did policy makers in the U.S. first use fiscal policy with the intent of manipulating aggregate demand to move the economy to its potential level of real GDP?

Keynesians favor active policy intervention to bring the economy back to its potential output while Monetarists argue that the uncertain nature of lags render policy intervention destabilizing

Which of the following is true about Keynesians and Monetarists with regards to policy intervention?

Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand

Which of the following is true about the Great Depression?

lowering taxes to increase work effort and lowering interest rates to stimulate investment

Which of the following policies would supply-side economists favor?

Transfer payment spending by the federal government and by state and local governments has more than doubled as a percentage of GDP

Which of the following statements characterizes government transfer payment spending in the United States between 1960 and 2007?

Keynes dismissed the notion that the economy would achieve full employment in the long run as irrelevant in explaining prolonged recessions

Which of the following statements is true about Keynes' macroeconomic theory?

The government's budget was generally in surplus in the 1960s, then mostly in deficit since except for a brief period between 1998 and 2001

Which of the following statements is true regarding the government budget?

Federal Open Market Committee

Who sets the federal funds rate?

Crowding out

reductions in private investment spending that offset increases in government purchase of investment goods because of the way the government purchases are financed