1030 1031 1032 1033 1034 Which of the following years is often described as the worst year of the Great Depression 1913 Incorrect 1933 True Answer Correct 1953 Incorrect 1973 Incorrect Prior to the 1930s the model of economics dominated economic thinking about how the economy worked Keynesian Incorrect classical True Answer Correct monetarist Incorrect real business cycle Incorrect Adam is an economist who believes that in the long run all prices are flexible and that any increase in the money supply will lead only to inflation not to an increase in aggregate output Because the economy would self correct to long run equilibrium output there is no role for either fiscal or monetary policy Adam is best described as a supply side economist Incorrect Keynesian economist Incorrect classical economist True Answer Correct monetarist Incorrect According to the classical model the aggregate supply curve is horizontal Incorrect increases in the money supply lead to proportional increases in the price level but not to change in real output True Answer Correct increases in the money supply lead to proportional changes in output but no change in the price level Incorrect we are all dead in the long run Incorrect In the classical model of the price level prices are the short run aggregate supply curve is vertical and as a result a decrease in the money supply leads to in the aggregate price level sticky a more than proportional decrease Incorrect flexible a proportional decrease True Answer Correct sticky a more than proportional increase Incorrect flexible a proportional increase Incorrect 1035 Because classical economists stressed the long run they perceived the economy as being mostly self adjusting True Answer Correct favored the use of fiscal policy over monetary policy Incorrect expected the government to purge the rottenness from the system Incorrect favored the use of monetary policy over fiscal policy Incorrect 1036 Classical economists focused mainly on unemployment Incorrect the short run Incorrect the long run True Answer Correct government economic policy Incorrect 1037 Classical economists point out that there is a tradeoff between unemployment and inflation Incorrect an increase in the money supply leads to a proportional rise in the price level True Answer Correct government spending can affect aggregate demand Incorrect there is the possibility of a liquidity trap Incorrect According to the classical model of the price level the short run aggregate supply curve is flat Incorrect negatively sloped Incorrect vertical True Answer Correct unstable Incorrect 1038 1039 1040 1041 1042 1043 Classical macroeconomics was based largely on the foundation of flexible wages and prices True Answer Correct persistent unemployment Incorrect government intervention in the market Incorrect Adam Smith s model of imperfectly competitive markets Incorrect The theory that dominated economic thinking up to the 1930s was monetarism Incorrect classical economics True Answer Correct Keynesian economics Incorrect rational expectations theory Incorrect The school of economics that dominated economic thinking prior to the Great Depression was the business cycle theorists Incorrect classical school True Answer Correct post Keynesian school Incorrect Marxists Incorrect Which of the following is a characteristic of the classical school of economics It emphasizes the short run Incorrect It emphasizes the flexibility of wages and prices True Answer Correct Potential output is a problem since it cannot be achieved without active policy Incorrect It advocates the use of discretionary fiscal policy Incorrect If wages and prices are perfectly flexible a decrease in aggregate demand will cause a n increase in the price level and unemployment Incorrect decrease in the price level and employment Incorrect increase in the price level and no change in employment Incorrect decrease in the price level and no change in employment True Answer Correct 1044 According to the classical model 1045 1046 prices are sticky making the aggregate supply curve upward rising in the short run Incorrect prices are flexible making the aggregate supply curve vertical in the short run True Answer Correct prices are flexible making the aggregate supply curve downward in the short run Incorrect prices are sticky making the aggregate supply curve vertical in the short run Incorrect When other things are equal and using the classical model an increase in the money supply leads to an equal proportional increase in the aggregate output with no effect on the aggregate price level Incorrect fall in the aggregate price level with no effect on aggregate output Incorrect rise in the aggregate price level with no effect on aggregate output True Answer Correct decrease in the aggregate output with no effect on aggregate price level Incorrect In the classical model an increase in the money supply will result in inflation only without affecting the aggregate output True Answer Correct economic expansion as the aggregate output will increase Incorrect higher interest rates lower investment and ultimately lower aggregate output Incorrect recession only without affecting the aggregate price level Incorrect 1047 Policy makers before the Great Depression were uncertain about the appropriate measure to use against a recession in the absence of any clear theory about the cause of business cycles True Answer Correct using both fiscal and monetary policies to combat the harmful effects of recession on output and employment Incorrect against using monetary policies to fight the economic downturns caused by business cycles Incorrect in favor of using only fiscal policies to fight the economic booms caused by business cycles Incorrect 1048 The measurement of business cycles was pioneered by Ragnar Frisch Incorrect John Maynard Keynes Incorrect Wesley Mitchell True Answer Correct Andrew Mellon Incorrect 1049 In response to the Great Depression the classical economists stressed the use of monetary policy over fiscal policy Incorrect tried to tame the animal spirits that caused the recession in the first place Incorrect stressed the use of fiscal policy over monetary policy Incorrect did not advocate any action because of the lack of consensus about the consequences of policy True Answer Correct 1050 1051 The beginning of a recession is declared by the National Bureau of Economic Research True Answer Correct Treasury Department Incorrect Fed Incorrect president
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