1. A policy implication of Keynesian economics is that a. full employment will a
ID: 1115388 • Letter: 1
Question
1. A policy implication of Keynesian economics is that
a. full employment will always be maintained.
b. countercyclical monetary and fiscal policies can be used to achieve full employment
c. countercyclical policies have no effect on the economy
d. constant growth of the money supply is better than discretionary policies
2. The recession in real GDP in 1970 during the Nixon administration
a. reinforced the Keynesian theory that fiscal policies were more effective than monetary policies in reducing output gaps
b. did not accord with the Keynesian theory because the price level had risen sharply; in the Keynesian model, prices fell when real GDP and employment were falling.
c. did not accord with the Keynesian theory because expansionary fiscal policies resulted in deflation; in the Keynesian model, prices rose when expansionary fiscal policies were administered to eliminate a recessionary gap
d. reinforced the Keynesian theory that prices fell when real GDP and employment were falling.
3. Suppose the U.S. economy experiences stagflation. An expansionary fiscal policy
a. increases real GDP and aggravates inflation.
b. increases real GDP and has no effect on inflation.
c. increases real GDP and lowers inflation
d. has no effect on real GDP but raises inflation.
4. In the 1970s the U.S. economy experienced a novel set of macroeconomic outcomes: rising price level and falling output. This experience led policymakers to
a. conclude that being a vital input, oil prices should be controlled by the government.
b. acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance.
c. aggregate demand was more important than aggregate supply in determining the economy’s output level.
d. conclude that fiscal policy alone was enough to stabilize the economy.
Explanation / Answer
1
b. countercyclical monetary and fiscal policies can be used to achieve full employment
the above is the answer
2.
b. did not accord with the Keynesian theory because the price level had risen sharply; in the Keynesian model, prices fell when real GDP and employment were falling.
the above is the answer
3.
a. increases real GDP and aggravates inflation.
the above is the answer
4.
b. acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance.
the above is the answer
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