Macro Section IV, Review with clickers 15 second timer after I finish reading the question. Wait for the count-down timer before you respond.

Consumer confidence drops Consumer confidence drops. If the government was to use DASK monetary policy it would: Spend more Tax more and reduce the deficit Tax more and increase the deficit Increase the money supply Increase interest rate targets

Consumer confidence drops Consumer confidence drops. If the government was to use DASK fiscal policy it would: Spend more Tax more and reduce the deficit Tax more and increase the deficit Increase the money supply Increase interest rate targets

Investment demand is rising and inflation is increasing Investment demand is rising and inflation is increasing. If the government was to use DASK monetary policy it would: Spend more Tax more and reduce the deficit Tax more and increase the deficit Increase the money supply Increase interest rate targets

Investment demand is rising and inflation is increasing Investment demand is rising and inflation is increasing. If the government was to use DASK fiscal policy it would: Spend more Tax more and reduce the deficit Tax more and increase the deficit Increase the money supply Increase interest rate targets

Which of the following is not part of a DASK policy? Stimulate Aggregate Demand during a recession Stabilize unemployment Assumes inflation-unemployment trade-off Follows policy rules Allowing policy makers to determine the best action

Why shouldn’t a government use a DASK policy? Government can’t act fast enough Economy doesn’t function as they think it does Policy doesn’t effect the economy as planned Discretion leads to manipulation All the above

Which movement would be most undesirable? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% Upward Downward To the left To the right 4% 6% 8%

People expect inflation to be 8%, and it really is 8% People expect inflation to be 8%, and it really is 8%. The economy will be at which point? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% A. 2 B. 3 C.4 D. 5 E. 6

People expect inflation to be 12%, and it really is 8% People expect inflation to be 12%, and it really is 8%. The economy will be at which point? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% A. 2 B. 3 C.4 D. 5 E. 6

People expect inflation to be 12%, and it really is 8% People expect inflation to be 12%, and it really is 8%. Unemployment will be? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% A. 4% B. 6% C.8% D. More than 8%

Inflation is 4% and people expect it Inflation is 4% and people expect it. The Fed increases inflation which surprises people. The economy would head towards? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% A. 2 B. 3 C.4 D. 5 E. 6

Inflation is 4% and people expect it Inflation is 4% and people expect it. The Fed increases inflation which people expect. The economy would head towards? 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% A. 2 B. 3 C.4 D. 5 E. 6

The economy moves from point 6 to point 3. This supports this concept: 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% Money Neutrality Inflation-Unemployment Trade-off Stagflation

The economy moves from point 6 to point 4. This supports this concept: 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% Money Neutrality Inflation-Unemployment Trade-off Stagflation

This change represents a tighter monetary policy which surprises people 1 2 12% 5 3 4 8% ExI =12% 7 6 4% ExI =8% ExI =4% 4% 6% 8% 2 to 1 2 to 3 2 to 4 2 to 5

Original Keynesian Theory supported which concept? Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

During the 1950’s, higher inflation was found to be correlated with lower unemployment. This supports this concept: Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

During the 1960’s, the government engineered higher inflation During the 1960’s, the government engineered higher inflation. Unemployment fell. This supports this concept: Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

A single downward sloping Phillips Curve suggests Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

The Long Run Vertical Phillips Curve suggests Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

This might be the most notable and unexpected macroeconomic phenomenon of the 1970’s. Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

In 1982, the government reduced inflation rapidly In 1982, the government reduced inflation rapidly. The unemployment rate rose. This supports which concept: Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

The economic experiences of the 1950’s, 60’s, 70’s and 80’s suggest this concept is true: Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

Government policy activists necessarily believe in this Money Neutrality Inflation-Unemployment Trade-off Stagflation Multiple Phillips Curves

The next set of questions uses the following answers Delays or Lags Unintended Consequences Mistakes

As the government runs a deficit, crowding out occurs Delays or Lags Unintended Consequences Mistakes

A inflationary bias occurs Delays or Lags Unintended Consequences Mistakes

Delays or Lags Unintended Consequences Mistakes The Political Cycle Delays or Lags Unintended Consequences Mistakes

Delays or Lags Unintended Consequences Mistakes The government debates spending cuts for several years as the economy recovers Delays or Lags Unintended Consequences Mistakes

Delays or Lags Unintended Consequences Mistakes People expect the Fed’s new loose money policy which results in higher inflation and no effect on unemployment Delays or Lags Unintended Consequences Mistakes

The recession is supply driven and not Keynesian Demand driven Delays or Lags Unintended Consequences Mistakes

Delays or Lags Unintended Consequences Mistakes The government provides tax cuts to pharmaceutical companies who provide large campaign contributions Delays or Lags Unintended Consequences Mistakes