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As unemployment rose during 1930 through 1931 and the economy plunged into the Great Depression, policy makers

increased tax rates and reduced the money supply.

Which of the following would most economists credit for the relative stability of the U.S. economy during the last two decades?

the Federal Reserve

According to Phillips Curve analysis, an unanticipated shift to a more expansionary monetary policy that permanently increases the rate of inflation from 2 to 6 percent will

reduce unemployment in the short run, but unemployment will return to the natural rate in the long run.

Most economists agree that

demand stimulus cannot reduce the unemployment rate below the natural level, at least not for long.

Persistently expansionary monetary policy that stimulates aggregate demand and leads to inflation will

fail to increase real output once decision makers fully anticipate the inflation.

"Monetary instability has been the major cause of economic instability in this country. Expansion in the money supply has been the source of every major inflation. Every major recession has been either caused or perpetuated by monetary contraction." Who among the following would most likely adhere to this view?


In the aggregate demand/aggregate supply model, when the output of an economy is less than its long-run potential, the economy will experience

declining real wages and interest rates that will stimulate employment and real output.

If AD intersects SRAS at an output level to the left of LRAS, the

actual rate of unemployment will exceed the natural rate.

Which of the following will most likely cause an increase in a nation's long-run aggregate supply curve?

the development of an Internet job bank that reduces the cost of job search and improves the efficiency of the labor market

Which of the following is a consensus view among economists with regard to fiscal policy?

Since changes in discretionary policy are difficult to time correctly, fiscal policy should not be altered in response to each minor disturbance.

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

the crowding-out effect

A balanced budget is present when

government revenues equal government expenditures.

The basic economic concept behind the long-run aggregate supply curve is

the production possibilities curve.

Both the crowding-out and new classical models indicate that

there are side effects of budget deficits that will substantially, if not entirely, offset their expansionary impact on aggregate demand.

If the government cuts the marginal tax rate, workers get to keep

more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

The crowding-out model implies that a

budget deficit will increase real interest rates and, thereby, retard private spending.

Other things constant, a reduction in marginal tax rates will tend to increase aggregate supply
because the lower taxes will increase

the attractiveness of productive activity relative to leisure and tax avoidance.

The experience of the 1970s shows us that

monetary policy is an effective tool to permanently change real variables such as GDP and unemployment.

According to the modern expectational Phillips curve, unemployment will temporarily rise above the natural rate of unemployment when

restrictive monetary policy is not anticipated.

The modern view of the Phillips curve suggests that

when expansionary monetary policy is unanticipated, unemployment will temporarily fall below the natural rate.

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1983-2004 period?

Federal Reserve policies that kept the inflation rate low and relatively stable

Which of the following contributed the most to the greater stability of the U.S. economy during the last two decades?

more stable monetary policy

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that

a market economy has a self-correcting mechanism that will help guide it toward full employment.

If business decision makers expect that the inflation rate will increase in the near future,

short-run aggregate supply will decrease.

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

rapid growth of real income in Canada and Western Europe

Which of the following limits an economy's productive capacity at a point in time?

the quantity and quality of productive resources

Which of the following will most likely accompany an unanticipated increase in aggregate demand?

an increase in real GDP

Expansionary monetary policy will

lead to higher nominal interest rates if the expansionary policy persists over a lengthy time period

If the Fed fears an economic downturn, it would be most likely to

buy additional bonds in order to reduce the federal funds rate.

An increase in the nominal interest rate would

encourage people to hold smaller money balances.

If decision makers fully anticipate the effects of a shift to a more expansionary monetary policy, the policy will

increase prices (or the inflation rate) and leave real output unchanged.

According to the modern expectational Phillips curve, unemployment will temporarily rise above the natural rate of unemployment when

restrictive monetary policy is not anticipated.

The integration of expectations into macroeconomic analysis indicates that

once people come to expect a given rate of inflation, the inflation will neither stimulate real output nor reduce unemployment.

Automatic stabilizers will shift the government budget toward

a surplus during an expansion and a deficit during a contraction.

Within the framework of the Keynesian model, which of the following would most likely occur
if the federal government increased its spending and enlarged the size of the budget deficit
during a period of full employment?

The rate of inflation would rise.

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run.

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