Exam 2 Econ 343

If policy is anticipated or expected, the economy moves from ____________ in both the demand-pull inflation model and the recession model.

1 to 3

debt rn

33 trillion

Which will increase (shift) the short-run aggregate supply rightward?

A favorable price shock (i.e. a fall in oil)

Which of the following is true?

All of the answers are true

Everything else held constant, a decrease in investment expenditure_____aggregate_____

Decreases; demand

Policy activism and policy discretion is a product of the ______________ school of thought.

Keynesian

Substantial and lengthy sticky prices and wages are a property of the__________ school of thought.

Keynesian

Which school of thought holds the policy is effective in both the long-run and short-run

Keynesian

the "legs" of the Keynesian social safety net in the U.S include

New Deal (1930's), Great society (1960s), and Great regulation (1970s)

"current economic parameters are determined by past rational expressions"

New Keynesian

I equals

S + (T-G) + (M-X)

Economists who believe tax policy is kryptonite and has a big effect on employment

Supply-sisters

The classical school believes which of the following?

The economy is stable at full employment most or all of the time

Most classical economists oppose fiscal policy measures in a recession

True

Which of the following shift the LRAS curve rightward

a increase in the education level of the labor force

Employing the modern FED approach , aggregate demand curve is downward sloping because

a lower inflation rate causes the real interest to fall, and stimulates planned investment spending

Taken to its logical conclusion, the real business cycle theory (and New Classical Theory) proposes that:

actual GDP always equals potential GDP, making all unemployment voluntary

the supply side policies included

all of the above

what caused the stagflation of the 1970's

all of the above

One way to derive aggregate demand is by looking at its four component parts, which are

consumer expenditures, planned investment spending, government spending, and net exports

Demand pull inflation persits because of

continuing increases in the quantity of money.

Which theory of balancing the budget balances it over the business cycle?

cyclically balanced budget

An increase in financial frictions

decreases aggregate demand

According to the laffer curve, raising the tax rate when the economy is on the negative slope:

decreases the amount of tax revenue

Employing the "Keyneisan" approach (legacy model), according to the wealth effect, an increase in the price level (i.e. inflation) ________ real wealth and ________ consumption expenditure.

decreases; decreases

Everything else held constant, an increase in net taxes_____aggregate____

decreases; demand

For monetarists the main cause of economic fluctuations is changes in

inappropriate monetary policy

The monetarist school of thought (post WW2)

includes all of the answers in this question

During an expansion, tax revenues ______, While during a recession, tax revenues _____

increase; decrease

A decrease in the inflationary expectations

increases the short-run aggregate supply.

the (original) Keynesian primary policy for a recession is

increasing government spending/cutting taxes

The long-run aggregate supply (LRAS) curve

is vertical

A major technological advance shifts the

long run and the short run aggregate supply curves rightward

the monetary rule states that money supply growth should be set equal to the:

long run growth of real GDP

the largest component of the generational fiscal imbalance is

medicare

Adaptive expectations are a property of the __________ school of thought

monetarist

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

productivity

The employment act of 1946 states that it is the responsibility of the federal government to

promote full employment

in 1929 the most important sources of state and local finance was:

property taxes

The new classical macroeconomic model assumes that expectations are ______ formed and that wages and prices are ______ with respect to the extended price level

rationally; completely flexible

The lag that describes the length of time from when an economy enters a recession and when policy makers become aware of the recession lag

recognition lag

Suppose that you pay 1000 in taxes and bill pays.....

regressive

Historically, the original classical school dominated macroeconomic thinking until

the great depression in the 1930's

According to the original Keynesian school, the primary source of the business cycle is

the instability of investment and consumption spending by investors and consumers

The short-run aggregate supply curve is upward sloping because

the money wage rate (and other input prices) remains constant so the higher prices makes it profitable

For movements along the long-run aggregate supply curve,

the price level and the money wage rate change by the same percentage

By 2001 the most important source of state and local finance was:

transfers from the federal government

At potential GDP

unemployment is at its natural rate.