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Macro Section IV, Clicker Review – Text Version
Consumer confidence drops. If the government was to use DASK monetary policy it
would:
a. Spend more
b. Tax more and reduce the deficit
c. Tax more and increase the deficit
d. Increase the money supply
e. Increase interest rate targets
Answer: d. Monetary policy means money (and interest rate targets). To counter the drop
in aggregate demand, the government should increase the money supply and reduce
interest rate targets.
Consumer confidence drops. If the government was to use DASK fiscal policy it would:
a. Spend more
b. Tax more and reduce the deficit
c. Tax more and increase the deficit
d. Increase the money supply
e. Increase interest rate targets
Answer: a. Fiscal policy is spending, taxes, and the deficit. So, if there’s a drop in AD,
the government should spend more, tax less, and increase the deficit.
Investment demand is rising and inflation is increasing. If the government was to use
DASK monetary policy it would:
a. Spend more
b. Tax more and reduce the deficit
c. Tax more and increase the deficit
d. Increase the money supply
e. Increase interest rate targets
Answer: e. There’s an increase in AD. Counter that by reducing the money supply and
increasing interest rate targets.
Investment demand is rising and inflation is increasing. If the government was to use
DASK fiscal policy it would:
a. Spend more
b. Tax more and reduce the deficit
c. Tax more and increase the deficit
d. Increase the money supply
e. Increase interest rate targets
Answer: b. Counter the drop in AD by taxing more and reducing the deficit.
Which of the following is not part of a DASK policy?
a. Stimulate Aggregate Demand during a recession
b. Stabilize unemployment
c. Assumes inflation-unemployment trade-off
d. Follows policy rules
e. Allowing policy makers to determine the best action
Answer: d. “D” in DASK stands for discretionary which means policy makers don’t
follow rules, they have discretion.
Why shouldn’t a government use a DASK policy?
a. Government can’t act fast enough
b. Economy doesn’t function as they think it does
c. Policy doesn’t effect the economy as planned
d. Discretion leads to manipulation
e. All the above
Answer: e.
1
12%
8%
3
2
5
4
ExI =12%
7
6
4%
ExI =8%
ExI =4%
4%
Which movement would be most undesirable?
a. Upward
b. Downward
c. To the left
d. To the right
6%
8%
Answer: d. To the right is higher unemployment, the least desirable.
People expect inflation to be 8%, and it really is 8%. The economy will be at which
point?
Answer: #4
People expect inflation to be 12%, and it really is 8%. The economy will be at which
point?
Answer: #5
People expect inflation to be 12%, and it really is 8%. Unemployment will be?
Answer: about (a little more) than 8%
Inflation is 4% and people expect it. The Fed increases inflation which surprises people.
The economy would head towards?
Answer: #3. The economy would start at #6 but the increase in inflation which surprises
people would move the economy towards point #3.
Inflation is 4% and people expect it. The Fed increases inflation which people expect.
The economy would head towards?
Answer: #4
The economy moves from point 6 to point 3. This supports this concept:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
Answer: b. Since going from 6 to 3 raises inflation but lowers unemployment
The economy moves from point 6 to point 4. This supports this concept:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
Answer: a. Since moving from 6 to 4 would increase inflation and have no impact on
unemployment.
This change represents a tighter monetary policy which surprises people
a. 2 to 1
b. 2 to 3
c. 2 to 4
d. 2 to 5
Answer: d. Tighter policy means inflation will decrease. If it surprises people it will
move along the same PC and head towards #5.
Original Keynesian Theory supported which concept?
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
During the 1950’s, higher inflation was found to be correlated with lower unemployment.
This supports this concept:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
During the 1960’s, the government engineered higher inflation. Unemployment fell.
This supports this concept:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
A single downward sloping Phillips Curve suggests
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
The Long Run Vertical Phillips Curve suggests
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: a.
This might be the most notable and unexpected macroeconomic phenomenon of the
1970’s.
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: c.
In 1982, the government reduced inflation rapidly. The unemployment rate rose. This
supports which concept:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
The economic experiences of the 1950’s, 60’s, 70’s and 80’s suggest this concept is true:
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: d.
Government policy activists necessarily believe in this
a. Money Neutrality
b. Inflation-Unemployment Trade-off
c. Stagflation
d. Multiple Phillips Curves
Answer: b.
The next set of questions uses the following answers
Delays or Lags
Unintended Consequences
Mistakes
As the government runs a deficit, crowding out occurs
Answer: Mistakes. It was believed that a deficit would stimulate the economy but
it crowded out instead. That’s a mistake about the effect of the deficit.
An inflationary bias occurs
Answer: Unintended Consequences. A result of the Fed’s attempt to manipulate
the economy.
The Political Cycle
Answer: Unintended Consequences. A result of manipulation
The government debates spending cuts for several years as the economy recovers
Answer: Delays or Lags
People expect the Fed’s new loose money policy which results in higher inflation and no
effect on unemployment
Answer: Mistakes
The recession is supply driven and not Keynesian Demand driven
Answer: Mistakes
The government provides tax cuts to pharmaceutical companies who provide large
campaign contributions
Answer: Unintended Consequences. This is rent seeking behavior which is
manipulation.