Question 1

In the new classical model,an expansionary monetary policy will lead to a decline in aggregate output if the increase in money supply is ________ anticipated.

Accepted Answer

A)  less than
B)  greater than
C)  not
D)  asE) A) and B)
F) A) and C)

Question 2

Explain why anticipated policy has different short-run effects on real output and the price level in the new classical,new Keynesian,and traditional models.What are the long-run effects of anticipated policy in each model?

Accepted Answer

In the new classical model,wages and pri...

Question 3

Today,most economists

Accepted Answer

A)  accept that expectations formation will change when the behavior of forecasted variables changes.
B)  believe that the Lucas critique has been discredited.
C)  accept the notion that there is no role for activist stabilization policy.
D)  believe that having policy credibility is not an important factor to a successful anti-inflation policy.E) A) and B)
F) A) and C)

Question 4

The similarity between advocates of nondiscretionary policies and the new classical economists is that both believe that

Accepted Answer

A)  only unanticipated policies can affect aggregate output and employment.
B)  only anticipated policies can affect aggregate output and employment.
C)  discretionary policies may be destabilizing.
D)  discretionary policies will be ineffective in changing aggregate output and employment.E) A) and D)
F) A) and C)

Question 5

In a new classical view of the world,the best anti-inflation policy,when viewed as being credible,is

Accepted Answer

A)  a gradualist policy.
B)  a cold turkey policy.
C)  a complete monetary and fiscal reform measure.
D)  an activist policy.E) None of the above
F) All of the above

Question 6

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

Accepted Answer

A)  the monetarist revolution.
B)  the Lucas critique.
C)  public choice theory.
D)  new Keynesian theory.E) A) and D)
F) B) and C)

Question 7

An expansionary monetary policy will cause aggregate output to expand in the new classical macroeconomic model

Accepted Answer

A)  if the policy is unanticipated.
B)  if the policy is anticipated.
C)  only after a long and variable lag,provided the policy is anticipated.
D)  never; output will never expand in the new classical model when monetary policy is changed.E) B) and C)
F) A) and D)

Question 8

Steve the economist tells his students that one anticipated policy is just like any other-none has any effect on aggregate output.You can probably infer that he is a

Accepted Answer

A)  Keynesian economist.
B)  monetarist.
C)  proponent of activist policies.
D)  new classical economist.E) None of the above
F) All of the above

Question 9

Rational expectations theory suggests that the success of an anti-inflationary policy depends on the

Accepted Answer

A)  adoption of a gold standard.
B)  passage of a tax cut.
C)  credibility of the policy in the eyes of the public.
D)  imposition of wage and price controls.E) B) and C)
F) A) and D)

Question 10

In the new classical model,an unanticipated increase in the money supply causes

Accepted Answer

A)  aggregate demand increases along a stationary aggregate supply curve.
B)  both aggregate demand and supply increase.
C)  aggregate demand increases as aggregate supply decreases.
D)  both aggregate demand and supply decrease.E) A) and B)
F) A) and C)

Question 11

According to the Lucas critique,if past increases in the short-term interest rate have always been temporary,then

Accepted Answer

A)  the term-structure relationship using past data will then show only a weak effect of changes in the short-term interest rate on the long-term rate.
B)  the term-structure relationship using past data will show no effect of changes in the short-term interest rate on the long-term rate.
C)  one cannot predict the term-structure relationship as it depends on expectations.
D)  the term-structure relationship using past data will nevertheless show a strong effect of changes in the short-term interest rate on the long-term rate because of a change in the way expectations are formed.E) A) and C)
F) B) and D)

Question 12

The Lucas critique indicates that

Accepted Answer

A)  advocates of discretionary policies' criticisms of rational expectations models are well-founded.
B)  advocates of discretionary policies' criticisms of rational expectations models are not well-founded.
C)  expectations are important in determining the outcome of a discretionary policy.
D)  expectations are not important in determining the outcome of a discretionary policy.E) B) and D)
F) A) and D)

Question 13

Mariann the economist argues that expectations are formed rationally,yet a pre-announced monetary expansion will lower unemployment.Mariann is probably a

Accepted Answer

A)  Keynesian economist.
B)  monetarist.
C)  new classical economist.
D)  new Keynesian economist.E) A) and B)
F) B) and C)

Question 14

In the new classical macroeconomic model developed by Lucas and Sargent,expansionary macropolicies affect aggregate output

Accepted Answer

A)  only when the macropolicy change is anticipated.
B)  only when the macropolicy change is unanticipated.
C)  only after a long and variable lag,provided the policy is anticipated.
D)  relatively quickly,provided the policy is anticipated.E) A) and B)
F) A) and C)

Question 15

The Lucas critique argues that an econometric model constructed using past data

Accepted Answer

A)  may be appropriate for short-run forecasting,but is inappropriate for policy analysis.
B)  may be appropriate for policy analysis,but is inappropriate for short-run forecasting.
C)  is appropriate for short-run forecasting and policy analysis.
D)  is inappropriate for policy analysis and short-run forecasting.E) B) and D)
F) A) and B)

Question 16

It may be necessary to cut the deficit as part of a credible anti-inflationary policy because the public knows that large deficits

Accepted Answer

A)  are inflationary by themselves in the long run.
B)  create inefficiencies.
C)  put pressure on the Fed to expand the money supply to keep interest rates from rising.
D)  put pressure on the Fed to contract the money supply to prevent employment from rising.E) A) and B)
F) All of the above

Exam 25: Rational Expectations: Implications for Policy

Mariann the economist argues that expectations are formed rationally,yet a pre-announced monetary expansion will lower unemployment.Mariann is probably a

Correct Answer
verified

In the new classical model,an expansionary monetary policy will lead to a decline in aggregate output if the increase in money supply is ________ anticipated.

Correct Answer
verified

Today,most economists

Correct Answer
verified

Rational expectations theory suggests that the success of an anti-inflationary policy depends on the

Correct Answer
verified

According to the Lucas critique,if past increases in the short-term interest rate have always been temporary,then

Correct Answer
verified

The similarity between advocates of nondiscretionary policies and the new classical economists is that both believe that

Correct Answer
verified

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

Correct Answer
verified

It may be necessary to cut the deficit as part of a credible anti-inflationary policy because the public knows that large deficits

Correct Answer
verified

Explain why anticipated policy has different short-run effects on real output and the price level in the new classical,new Keynesian,and traditional models.What are the long-run effects of anticipated policy in each model?

Correct Answer
verified
In the new classical model,wages and pri...
View Answer

In the new classical model,an unanticipated increase in the money supply causes

Correct Answer
verified

The Lucas critique indicates that

Correct Answer
verified

In a new classical view of the world,the best anti-inflation policy,when viewed as being credible,is

Correct Answer
verified

The Lucas critique argues that an econometric model constructed using past data

Correct Answer
verified

Steve the economist tells his students that one anticipated policy is just like any other-none has any effect on aggregate output.You can probably infer that he is a

Correct Answer
verified

In the new classical macroeconomic model developed by Lucas and Sargent,expansionary macropolicies affect aggregate output

Correct Answer
verified

An expansionary monetary policy will cause aggregate output to expand in the new classical macroeconomic model

Correct Answer
verified

Exam 25: Rational Expectations: Implications for Policy

Mariann the economist argues that expectations are formed rationally,yet a pre-announced monetary expansion will lower unemployment.Mariann is probably a

Correct AnswerverifiedShow Answer

In the new classical model,an expansionary monetary policy will lead to a decline in aggregate output if the increase in money supply is ________ anticipated.

Correct AnswerverifiedShow Answer

Today,most economists

Correct AnswerverifiedShow Answer

Rational expectations theory suggests that the success of an anti-inflationary policy depends on the

Correct AnswerverifiedShow Answer

According to the Lucas critique,if past increases in the short-term interest rate have always been temporary,then

Correct AnswerverifiedShow Answer

The similarity between advocates of nondiscretionary policies and the new classical economists is that both believe that

Correct AnswerverifiedShow Answer

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

Correct AnswerverifiedShow Answer

It may be necessary to cut the deficit as part of a credible anti-inflationary policy because the public knows that large deficits

Correct AnswerverifiedShow Answer

Explain why anticipated policy has different short-run effects on real output and the price level in the new classical,new Keynesian,and traditional models.What are the long-run effects of anticipated policy in each model?

Correct AnswerverifiedIn the new classical model,wages and pri...View AnswerShow Answer

In the new classical model,an unanticipated increase in the money supply causes

Correct AnswerverifiedShow Answer

The Lucas critique indicates that

Correct AnswerverifiedShow Answer

In a new classical view of the world,the best anti-inflation policy,when viewed as being credible,is

Correct AnswerverifiedShow Answer

The Lucas critique argues that an econometric model constructed using past data

Correct AnswerverifiedShow Answer

Steve the economist tells his students that one anticipated policy is just like any other-none has any effect on aggregate output.You can probably infer that he is a

Correct AnswerverifiedShow Answer

In the new classical macroeconomic model developed by Lucas and Sargent,expansionary macropolicies affect aggregate output

Correct AnswerverifiedShow Answer

An expansionary monetary policy will cause aggregate output to expand in the new classical macroeconomic model

Correct AnswerverifiedShow Answer

Correct Answer
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In the new classical model,wages and pri...
View Answer

Correct Answer
verified

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Correct Answer
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