2. Some Keynesian economists believed that at the cost of some inflation, the go

Question

2. Some Keynesian economists believed that at the cost of some inflation, the government could reduce the unemployment rate to a permanently low rate. T/F

3. The Great Moderation consensus is that discretionary fiscal policy can be destabilizing because of lags in adjusting policy. T/F

4. A policy of expansionary austerity involves increasing government spending to increase private-sector confidence, leading to an increase in output and employment. T/F

5. The Great Moderation consensus regarding the use of monetary policy to fight recessions is that expansionary monetary policy:

a. is ineffective because the public expects it.

b. can be used to increase aggregate demand but at the cost of higher aggregate prices.

c. is harmful because it only increases the aggregate price level.

d. has little impact on aggregate demand because of liquidity traps.

6. Many economists favored using discretionary fiscal policy during the Great Recession because monetary policy could not be used when interest rates were near zero. T/F

7. Christina believes that shifts in aggregate demand cause a change in both real output and the price level. She believes that an economic recession will not necessarily self-correct in the long run, and therefore she believes that active fiscal and monetary policy is justified to smooth out the business cycle.

a. supply-sider.

b. Keynesian.

c. classical economist.

d. monetarist.

8. The recommendation that a decrease in taxes will alleviate a recessionary gap is consistent with _____ macroeconomics.

a. Keynesian

b. Classical

c. Great Moderation consensus

d. Monetarist

Explanation / Answer

1 :- Option (B) is correct.

2 :- True

3 :- False

4 :- True

5 :- Option (C) = is harmful because it increases only aggregate price level is correct.

6 :- True

7 :- Option (C) = Classical economist is correct.

8 :- Option (A) = Keynesian is correct.

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