Download ECN202 Practice Questions: 1960s

ECN202
Practice Questions: 1960s
1. Which of the following innovations had an important effect on the 1960 presidential election?
a. radio
b. television
c. jet airplanes
d. computers
Obama ‘stole’ from Kennedy the idea of using the new media - for Kennedy it was TV and Obama used the Internet
2. WWII followed close on the heals of a worldwide depression in the 1930s and another WW in the 1910s, so once
WWII was ended there was a very real interest in moving the world forward toward a future without another world war
or another depression. To achieve this end there were a number of policy moves that followed the peace. Which of the
following was not one of the post WWII developments.
a. the Cold War "heated up" with uprisings in eastern Europe
b. many of countries in Africa and Asia that were part of Europe's colonial empires began to seek independence
c. the World Bank and the International Monetary Fund (IMF) were the products of the Bretton Woods Agreement
d. Europe began a process of integration with the early steps toward what Churchill described as the "United States
of Europe."
e. the New Deal helped funnel BIG money from the US to aid in the rebuilding of Latin America
The New Deal was the 1930s program in the US
3. Let's put you back in the role of policy advisor to the prez and assume you are a 'card carrying' Keynesian who
believes in the power of discretionary fiscal policy. Given your background, after seeing the latest macroeconomic
statistics that indicated that initial unemployment claims and inventories were both rising, which fiscal policy would
you be likely to propose if your goal was full employment?
a. reduce social security benefits
b. raise corporate income taxes
c. lower personal income taxes
d. lower money supply
It has to be a fiscal policy that increases demand – so cut taxes and people will spend
4. Based on what we know about aggregate demand based on the track record, which of the following statements is not
true?
a. of the components of consumption expenditures, the fastest growing in the last 20ish years has been consumer non
durables
b. of the components of consumption expenditures, the one that can be expected to take the biggest "hit" in the next
recession would be consumer durables
c. of the components of investment expenditures, the one that is most volatile would be inventory investment
d. the rise in spending on health and education has shown up in the rapid growth in the service component of
consumption spending
Consumption of nondurables – food, cloything… - has not been rising as fast as services and durables.
5. Based on the differences in the slopes of the AS-AD curves between the Classical and Keynesian models, which of
the following would be the true statement?
a. expansionary monetary policy is likely to increase the price level more in the Keynesian model
b. contractionary fiscal policy is likely to increase the output level more in the Keynesian model
c. expansionary fiscal policy is likely to increase the output level more in the Keynesian model
d. contractionary monetary policy is likely to decrease the output level more in the Classical model
Because of the slope of the AS curve, policies tend to be more effective in the “Keynesian” world – so expansionary
fiscal policy is likely to increase the output level more in the Keynesian model
6. What do you do with a country trapped in a long recession but very worried about the fiscal implications of a
permanent tax cut? If you were going to propose a temporary tax cut to help stimulate aggregate demand in the
economy, to whom would you give a temporary cut?
a. income tax cut to middle income consumers
b.
c.
d.
investment tax credit to businesses
income tax cut to high income consumers
gift tax to individuals
Temporary works for Investment spending more than consumption spending.
7. The 1960s was a time period to experiment with fiscal policy. What did we learn from president Johnson?
a. timing matters and policy makers improperly estimated the lags on fiscal policy
b. tax increases are less effective than tax cuts
c. temporary tax cuts will have minimal impact on consumption spending
d. the Vietnam war was the problem since wars will suspend the normal economic rules
Temporary works for Investment spending more than consumption spending.
8. One of the problems facing policy makers is that macroeconomic policies do not work instantaneously. Which of
the following lags is likely to be longer for fiscal policy?
a. discussion lag - time to determine appropriate policy
b. action lag - time for policy to have its impact on economy
c. recognition lag - time needed to recognize the need for a policy change
d. none
It does not take long for the FED chair to decide what to do – so the discussion lag is quite short for monetary policy.
9. A colleague of mine is in the forecasting business and he supplies forecasts of the Rhode Island economy for public
policy officials in the state. When he makes these forecasts he has to decide on the technique to use. His forecasts of
the performance of the RI economy are based on the expected performance of the US economy. This would be an
example of which type of forecasting method?
a. econometric forecasting
b. barometric forecasting
c. time-series forecasting
d. consensus forecasting
If you are explaining the value of Y based on the value of X, then it is an econometric approach.
Use the following AS-AD graphs to answer the next three questions. (The line without the letter is the curve after a
shift)
10. Which diagram would best represent the impact of the Kennedy tax cut?
a. A
b. B
c. C
d. D
Kennedy’s tax cut was designed to increase C – Graph A
11. Which AS-AD diagram of the US economy would best represent the impact of the entry of baby boomers into the
labor force in the 1960s?
a. A
b. B
c. C
d. D
The boomers entering the LF = increase in AS – Graph b
12. Which diagram would best represent a situation that would show up as a movement up along the Phillips curve higher inflation and lower unemployment.
a. A
b. B
c. C
d. D
Lower unemployment rate with higher inflation = caused by increase in AD – Graph A
13. Forecasting is difficult, especially when you are forecasting the future. Based on what you know - or should know about macroeconomics, which of the following would tend to push my forecasts of inflation rates higher based on my
knowledge of the Phillips curve?
a. projected increases in the BOP
b. projected decreases in unemployment
c. projected decreases in GDP
d. projected increases in the budget deficit
e. projected increases in inventory investment
The Phillips curve is a negative relationship between inflation and unemployment – so an increase in inflation would
show up with a decrease in the unemployment rate
14. Which of the following fiscal policies would be designed to move downward along the Phillips curve that would
decrease the rate of inflation?
a. an increase in the discount rate
b. a tax cut
c. a toll-free national clearinghouse for jobs
d. an increase in social security taxes
It has to be a fiscal policy that decreases the inflation rate, which means that demand must fall – so raise taxes and
people will spend less
15. Which of the following would be a policy designed to move the Phillips curve inward?
a. expansionary monetary policy
b. a job retraining program
c. raising personal income taxes
d. increasing the money supply
If you are to get a ‘better’ tradeoff between inflation and unemployment you need to increase the efficiency in the
labor market – and a job-retraining program would help – as would a clearing house for jobs.