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