FNCE 4500 - Final Exam Study
Guide
Whether one views the discretionary policies of the 1960's and 1970's as destabilizing or
believes the economy would have been less stable without these policies, most
economists agree that - ANSWER A) Stabilization policies proved more difficult in
practice than many economists had expected
The argument that econometric policy evaluation is likely to be misleading if
policymakers assume stable economic relationships is known as - ANSWER B) the
Lucas Critique
Lucas argues that when policies change, expectations will change therby - ANSWER A)
changing the relationships in econometric models
The rational expectations hypothesis implies that when macroeconomic policy changes
- ANSWER B) the way expectations are formed will change
The Lucas critique indicates that - ANSWER C) expectations are important in
determining the outcome of a discretionary policy
The Lucas critique argues that an econometric model constructed using past data -
ANSWER D) is inappropriate for policy analysis and short-run forecasting
The Lucas critique is an attack on the usefulness of - ANSWER B)Conventional
econometric models as indicators of the potential impacts on the economy of particular
policies
The interest rate thought to have the most important impact on aggregate demand is the
- ANSWER D) long-term interest rate
A rise in short-term interest rates that is believed to be only temporary - ANSWER C)is
likely to have only a small impact on long-term interest rates
According to the Lucas critique, if past increases in the short-term interest rate have
always been temporary, then - 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
The new classical macroeconomic model assumes that expectations are ___________
formed and that wages and prices are _____________ with respect to the expected price
level - ANSWER C) rationally; completely flexible
, In the new classical macroeconomic model developed by Lucas and Sargent, an
anticipated monetary expansion will - ANSWER C) have no effect on the aggregate
output
In the new classical macroeconomic model developed by Lucas and Sargent,
expansionary macropolicies affect aggregate output - ANSWER B) only when the
macropolicy change in unanticipated
An expansionary monetary policy will cause aggregate output to expand in the new
classical macroeconomic model - ANSWER A) if the policy is unanticipated
According to the new classical model, - ANSWER C) anticipated policy has no effect on
the business cycle
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 - ANSWER D)
new classical economist
In the view of the new classical economists, an increase in the money supply will affect
aggregate output and employment only if the increase in money supply is - ANSWER C)
unanticipated
In the new classical model, an anticipated increase in the money stock will cause -
ANSWER C) the price level to increase
In the new classical model, - ANSWER B) a rise in the expected price level results in an
immediate and equal rise in wages and prices
Suppose that the Federal Reserve announces a 50 basis point decrease in the target for
the federal funds rate that was completely anticipated. According to the new classical
model and with everything else held constant, this action by the Federal Reserve will
cause real GDP to _________ - ANSWER C) remain constant
In the new classical model, an anticipated policy of a continually increasing money
supply causes - ANSWER C) aggregate demand continually increases while
simultaneously aggregate supply continually decreases, leading to higher and higher
price levels
The short-run response to an anticipated expansionary policy in the new classical model
includes _________ in the price level and _________ in aggregate output - ANSWER B) an
increase; no change
In the new classical model, an unanticipated increase in the money supply causes -
ANSWER B) both aggregate demand and supply increase
___________ policies do not change aggregate real output or the unemployment rate in
the ___________ model - ANSWER C) Anticipated; new classical
The new classical model has the world classical associated with it because, when an
Guide
Whether one views the discretionary policies of the 1960's and 1970's as destabilizing or
believes the economy would have been less stable without these policies, most
economists agree that - ANSWER A) Stabilization policies proved more difficult in
practice than many economists had expected
The argument that econometric policy evaluation is likely to be misleading if
policymakers assume stable economic relationships is known as - ANSWER B) the
Lucas Critique
Lucas argues that when policies change, expectations will change therby - ANSWER A)
changing the relationships in econometric models
The rational expectations hypothesis implies that when macroeconomic policy changes
- ANSWER B) the way expectations are formed will change
The Lucas critique indicates that - ANSWER C) expectations are important in
determining the outcome of a discretionary policy
The Lucas critique argues that an econometric model constructed using past data -
ANSWER D) is inappropriate for policy analysis and short-run forecasting
The Lucas critique is an attack on the usefulness of - ANSWER B)Conventional
econometric models as indicators of the potential impacts on the economy of particular
policies
The interest rate thought to have the most important impact on aggregate demand is the
- ANSWER D) long-term interest rate
A rise in short-term interest rates that is believed to be only temporary - ANSWER C)is
likely to have only a small impact on long-term interest rates
According to the Lucas critique, if past increases in the short-term interest rate have
always been temporary, then - 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
The new classical macroeconomic model assumes that expectations are ___________
formed and that wages and prices are _____________ with respect to the expected price
level - ANSWER C) rationally; completely flexible
, In the new classical macroeconomic model developed by Lucas and Sargent, an
anticipated monetary expansion will - ANSWER C) have no effect on the aggregate
output
In the new classical macroeconomic model developed by Lucas and Sargent,
expansionary macropolicies affect aggregate output - ANSWER B) only when the
macropolicy change in unanticipated
An expansionary monetary policy will cause aggregate output to expand in the new
classical macroeconomic model - ANSWER A) if the policy is unanticipated
According to the new classical model, - ANSWER C) anticipated policy has no effect on
the business cycle
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 - ANSWER D)
new classical economist
In the view of the new classical economists, an increase in the money supply will affect
aggregate output and employment only if the increase in money supply is - ANSWER C)
unanticipated
In the new classical model, an anticipated increase in the money stock will cause -
ANSWER C) the price level to increase
In the new classical model, - ANSWER B) a rise in the expected price level results in an
immediate and equal rise in wages and prices
Suppose that the Federal Reserve announces a 50 basis point decrease in the target for
the federal funds rate that was completely anticipated. According to the new classical
model and with everything else held constant, this action by the Federal Reserve will
cause real GDP to _________ - ANSWER C) remain constant
In the new classical model, an anticipated policy of a continually increasing money
supply causes - ANSWER C) aggregate demand continually increases while
simultaneously aggregate supply continually decreases, leading to higher and higher
price levels
The short-run response to an anticipated expansionary policy in the new classical model
includes _________ in the price level and _________ in aggregate output - ANSWER B) an
increase; no change
In the new classical model, an unanticipated increase in the money supply causes -
ANSWER B) both aggregate demand and supply increase
___________ policies do not change aggregate real output or the unemployment rate in
the ___________ model - ANSWER C) Anticipated; new classical
The new classical model has the world classical associated with it because, when an
