Title: Policy Applications
Course: Macro Quiz Test

Q: Neoclassical economists believe in which of the following views to stimulate economic growth?
- high taxes
- spending to generate demand
- low taxes
A: low taxes

Q: According to Neoclassical economists the following is a means to stimulate economic growth?
- high taxes
- government spending to increase demand
- low taxes
A: low taxes

Q: In general, neoclassical economists focus on aggregate ________ to help stimulate the economy?
- demand
- spending
- supply
A: supply

Q: The neoclassical economists believe to help grow the economy, they should focus on ________?
- aggregate demand
- spending
- aggregate supply
A: aggregate supply

Q: Which distinct school of thought is NOT typical of neoclassical economics?
- Supply side economics
- New classical economics
- Keynesian economics
A: Keynesian economics

Q: Which of the following distinct economic schools of thought is excluded from neoclassical style economics?
- Supply side economics
- New classical economics
- Keynesian economics
A: Keynesian economics

Q: Neoclassical economists believe that the economy ________.
- is not self-correcting
- needs government intervention to improve
- is self-correcting
A: is self-correcting

Q: The macroeconomy, according to neoclassical economists, ________.
- will not correct itself
- improves if government intervention is applied
- will correct itself
A: will correct itself

Q: According to Keynesian views, why is the effect of a government expenditure multiplier transmitted throughout the economy?
- Because government spending changes the interest rate.
- Because there is no change in taxes.
- Because government spending generates a change in income, which generates a change in consumption spending which generates a change in income, etc.
A: Because government spending generates a change in income, which generates a change in consumption spending which generates a change in income, etc.

Q: In the Keynesian model, the government can respond to a recessionary or inflationary gap by
- leaving autonomous spending alone.
- changing the quantity of money.
- relying on the spending multiplier to generate a change in real GDP that is a multiple of the change in autonomous spending.
A: relying on the spending multiplier to generate a change in real GDP that is a multiple of the change in autonomous spending.

Q: According to the Keynesian beliefs, if government spending decreased by $10 million, aggregate demand would decrease by
- $10 million.
- less than $10 million.
- more than $10 million.
A: more than $10 million.

Q: According to the Keynesian beliefs, if GDP was $100 million below potential GDP, what should the government do to bring it back to equilibrium?
- Raise government spending by $100 million.
- Do nothing.
- Raise government spending by something less than $100 million.
A: Raise government spending by something less than $100 million.

Q: According to Keynesian views, what is government's role when it comes to the U.S. economy?
- The government has a responsibility to follow a hands-off approach with the economy.
- The government has a responsibility to monitor the economy but not meddle with it.
- The government has a responsibility to manage the economy.
A: The government has a responsibility to manage the economy.

Q: If the economy were run with a strictly Keynesian point of view, what would the government's role be in regards to the U.S. economy?
- The government is responsible for managing the economy with a hands-off approach.
- The government is responsible for monitoring the economy but not interfering with it.
- The government is responsible for managing the economy.
A: The government is responsible for managing the economy.

Q: During the Great Recession when the Fed purchased in the open market, sellers held on to the funds instead of depositing them in banks. These actions stalled the interest rate from falling. According to Keynesian beliefs this is called a(n) ________ and the best monetary policy response should be a(n) ________.
- interest pitfall; expansionary policy
- monetary stall; contractionary policy
- liquidity trap; expansionary policy
A: liquidity trap; expansionary policy

Q: Keynes theorized of a time when the Fed purchased in the open market but sellers held on to the funds instead of depositing them in banks. These circumstances stalled the decreasing interest rate. This scenario called a(n) ________ occurred during the Great Recession and the best monetary policy response to it is to ________.
- interest pitfall; continue with an expansionary policy
- monetary stall; continue with a contractionary policy
- liquidity trap; continue with an expansionary policy
A: liquidity trap; continue with an expansionary policy

Q: The ________ suggests a negative relationship between inflation and unemployment.
- aggregate demand curve
- long-run Phillips curve
- short-run Phillips curve
A: short-run Phillips curve

Q: Consider the short-run Phillips curve, the unemployment rate and inflation rate are considered to
- have a positive relationship.
- have an unknown relationship.
- have an inverse or negative relationship.
A: have an inverse or negative relationship.

Q: The Phillips curve illustrates a trade-off between ________ and ________.
- the natural rate of unemployment; inflation
- the natural rate of unemployment rate; the actual unemployment rate
- unemployment; inflation
A: unemployment; inflation

Q: What two economic areas is the Phillips curve illustrating that have an inverse relationship with each other?
- Inflation and the natural rate of unemployment.
- The actual unemployment rate and the natural rate of unemployment.
- Inflation and unemployment.
A: Inflation and unemployment.

Q: Acting from a Keynesian viewpoint, with inflation and unemployment negatively related, what should the Fed choose as its policy in an inflationary economy to move down the Phillips Curve and decrease inflation?
- Buy securities in the Open Market Operations (OMO).
- Increase taxes.
- Sell securities in the OMO (Open Market Operations).
A: Sell securities in the OMO (Open Market Operations).

Q: What policy actions should the Fed take, acting from a Keynesian viewpoint, with inflation and unemployment is inversely related, to move up the Phillips Curve in a recessionary economy and decrease unemployment?
- increase taxes
- sell securities in the OMO (Open Market Operations)
- buy securities in the Open Market Operations (OMO)
A: buy securities in the Open Market Operations (OMO)

Q: The Phillips curve is a ________ viewpoint.
- neoclassical
- monetarist
- Keynesian
A: Keynesian

Q: Which of the following viewpoints uses the Phillips curve?
- Neoclassical
- Monetarist
- Keynesian
A: Keynesian

Q: According to Keynesian views, the aggregate supply curve ________.
- slopes downward
- is horizontal
- slopes upward
A: slopes upward

Q: A typical Keynesian Phillips curve ________.
- slopes upward
- is horizontal
- slopes downward
A: slopes downward

Q: The Phillips Curve and the ________ are different ways of showing the same relationship between inflation and unemployment.
- supply curve
- aggregate demand curve
- AD-AS model
A: AD-AS model

Q: The AD-AS model and the ________ are different ways of showing the same relationship between unemployment and inflation.
- supply curve
- aggregate demand curve
- Phillips Curve
A: Phillips Curve

Q: A Phillips curve shows the tradeoff between unemployment and inflation, therefore ________.
- if one is low the other must be low
- if one is high the other must be high
- if one is higher the other must be low
A: if one is higher the other must be low

Q: A Phillips curve shows the tradeoff between inflation and unemployment, so if one is ________.
- low the other must be low
- high the other must be high
- low the other must be high
A: low the other must be high

Q: Which of the following statements is true about the Phillips Curve and Aggregate Supply curve?
- The short-run Aggregate Supply and Phillips Curve curves are upward sloping.
- During a recession when GDP is below potential, inflation is high according to the Keynesian zone of the AS curve.
- Along the Keynesian zone of an AS curve, inflation is low when unemployment is high.
A: Along the Keynesian zone of an AS curve, inflation is low when unemployment is high.

Q: When considering the Phillips Curve, which statement below is the most accurate?
- The short-run Phillips Curve and Aggregate Supply curves are upward sloping.
- During a recession when unemployment is high, inflation is also high in the Keynesian zone of the AS curve.
- Along the Keynesian zone of an AS curve, inflation is low when GDP is below potential.
A: Along the Keynesian zone of an AS curve, inflation is low when GDP is below potential.

Q: Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:
- at least a slight increase in aggregate demand.
- at least a slight decrease in unemployment.
- at least a slight increase in unemployment.
A: at least a slight increase in unemployment.

Q: If inflation is decreasing what is likely happening along a Keynesian Phillips curve?
- A slight increase in aggregate demand.
- A slight decrease in unemployment.
- A slight increase in unemployment.
A: A slight increase in unemployment.

Q: Which of the following statement(s) about economic models is false?
- In the neoclassical model, the real wage adjusts to move the economy to full employment.
- In the Keynesian model, equilibrium is achieved by adjustments in aggregate demand, which equals aggregate income.
- In the Keynesian model, the real wage adjusts to move the economy to full employment.
A: In the Keynesian model, the real wage adjusts to move the economy to full employment.

Q: Which of the following statement(s) about economic models is true?
- In the Keynesian model, the real wage adjusts to move the economy to full employment.
- In the neoclassical model, equilibrium is achieved by adjustments in aggregate demand, which equals aggregate income.
- In the neoclassical model, the real wage adjusts to move the economy to full employment.
A: In the neoclassical model, the real wage adjusts to move the economy to full employment.

Q: The statement, ________matches Keynesian theory.
- “A typical business frequently changes its prices to adjust to changes in aggregate demand.”
- “The economy is always at the natural rate of unemployment levels.”
- “A typical business has sticky prices when aggregate demand fluctuates.”
A: “A typical business has sticky prices when aggregate demand fluctuates.”

Q: Which of the following is consistent with Keynesian theory?
- A typical firm changes its prices frequently to adjust to changes in aggregate demand.
- The economy is always at full employment.
- A typical firm does not change its prices immediately when aggregate demand fluctuates.
A: A typical firm does not change its prices immediately when aggregate demand fluctuates.

Q: In the long run, the Phillips curve ________.
- has a tradeoff between unemployment and inflation
- has a tradeoff between unemployment and the natural rate of unemployment.
- has no tradeoff between unemployment and inflation
A: has no tradeoff between unemployment and inflation

Q: In the long run, the Phillips curve will be ________ at the natural rate of unemployment.
- a horizontal line
- upward sloping
- a vertical line
A: a vertical line

Q: In a neoclassical economist’s world, an increase in taxes will
- raise the level of GDP.
- increase the natural rate of unemployment.
- lower the price level.
A: lower the price level.

Q: Decreasing taxes according to a neoclassical economist will
- lower GDP levels.
- increase the natural rate of unemployment.
- raise the price level.
A: raise the price level.

Q: The theory of ________ assumes that individuals will use all information available to them to form the most accurate possible expectations about the future.
- adaptive expectations
- Keynesian economics
- rational expectations
A: rational expectations

Q: Which economic theory assumes individuals will use past values of inflation to predict the possible expected future values of inflation?
- rational expectations
- Keynesian economics
- adaptive expectations
A: adaptive expectations

Q: If the theory of rational expectations is correct, then the ________, even in the short run.
- aggregate demand curve should be vertical
- aggregate supply curve should be horizontal
- Phillips curve should be vertical
A: Phillips curve should be vertical

Q: Assuming the theory of rational expectations is accurate, even in the short-run the ________.
- aggregate demand curve is vertical
- aggregate supply curve is horizontal
- Phillips curve is vertical
A: Phillips curve is vertical

Q: When a shift in ________ occurs, rational expectations hold that its impact on output and employment will only be minimal.
- aggregate supply
- wage levels
- aggregate demand
A: aggregate demand

Q: When a shift in aggregate demand occurs, rational expectations hold that ________.
- its impact on employment and output will be exponential
- its impact on employment and output will have no change whatsoever
- its impact on employment and output will only be minimal
A: its impact on employment and output will only be minimal

Q: New classical economists believe that a contractionary monetary policy can be effective
- because households and businesses expect higher interest rate and lower prices, and therefore spend more on consumption and investment.
- because households and businesses expect higher interest rates and lower prices, and therefore do not change their consumption and investment.
- only when households and businesses do not expect higher interest rates or lower prices, and therefore reduce their consumption and investment.
A: only when households and businesses do not expect higher interest rates or lower prices, and therefore reduce their consumption and investment.

Q: According to new classical economists, a contractionary monetary policy is effective
- because businesses and households expect lower prices and higher interest rates, and therefore spend more on investment and consumption.
- because businesses and households expect lower prices and higher interest rates, and therefore continue on with the same level of investment and consumption.
- only because businesses and households are not expecting lower prices and higher interest rates, so they reduce their investment and consumption.
A: only because businesses and households are not expecting lower prices and higher interest rates, so they reduce their investment and consumption.

Q: After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall?
- neoclassical theory
- cyclical expectations
- rational expectations
A: rational expectations

Q: Which of the following more than likely caused housing prices to fall after the media reported about the subprime mortgage crisis?
- neoclassical theory
- cyclical expectations
- rational expectations
A: rational expectations

Q: New classical economists argue that a tax cut does not shift the aggregate demand curve because:
- consumers doubt future government debt will have an effect on future taxes.
- prices are inflexible, so real GDP does not change.
- households reduce their consumption so they can pay afford to pay higher taxes in the future.
A: households reduce their consumption so they can pay afford to pay higher taxes in the future.

Q: According to new classical economists the reason that a tax cut does not shift the aggregate demand curve is:
- households increase their consumption and can pay higher taxes in the future.
- real GDP does not chance because prices are inflexible.
- consumers anticipate the effect of an increase in government debt on future taxes.
A: consumers anticipate the effect of an increase in government debt on future taxes.

Q: New Classical economists believe fiscal policy is ineffective because any increase in government spending will cause:
- private individuals to save less.
- business investment to fall.
- households to spend less.
A: households to spend less.

Q: If, according New Classical economists, fiscal policy is inadequate because any government spending increase causes:
- private individuals to spend more and save less.
- business to decrease their investments.
- most households save rather than spend.
A: most households save rather than spend.

Q: If Ricardian Equivalence theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following?
- A change in currency exchange rates.
- A sustained pattern of trade imbalances.
- A corresponding change in private saving.
A: A corresponding change in private saving.

Q: Ricardian equivalence means that changes in
- exports offset any changes in the government deficit.
- imports offset any changes in the government deficit.
- private savings offset any changes in the government deficit.
A: private savings offset any changes in the government deficit.

Q: Suppose you are analyzing data for an economy in which Ricardian equivalence holds true. If the budget deficit increases by 50, then:
- investment will increase by 50 or more.
- investment will decrease by 50 or less.
- private savings will increase by 50 or less.
A: private savings will increase by 50 or less.

Q: Take the scenario where an economist is analyzing data for an economy in which Ricardian equivalence holds true. If there is an increase by 25 in the budget deficit, then:
- investment will increase by 25 or more.
- investment will decrease by 25 or less.
- private savings will increase by 25 or less.
A: private savings will increase by 25 or less.

Q: What is the theory that supports Ricardian Equivalence?
- Cutting taxes has little to no effect on supply or household saving.
- Increased government spending strives to promote and increase household consumption while decreasing the deficit.
- As households make consumption decisions they consider government actions and policies when making adjustments to spending and saving.
A: As households make consumption decisions they consider government actions and policies when making adjustments to spending and saving.

Q: When economists use Ricardian Equivalence, what rational thought supports it?
- Supply and household savings are not affected by tax cuts.
- Increasing household consumption is the goal as government increases spending and decrease household savings.
- Households consider future ramifications of current government policies and adjust their savings/spending accordingly which decreases the effectiveness of fiscal policy.
A: Households consider future ramifications of current government policies and adjust their savings/spending accordingly which decreases the effectiveness of fiscal policy.

Q: ________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect.
- Altering the discount rate
- Reserve requirements
- Long and variable time lags
A: Long and variable time lags

Q: What makes it difficult for the central bank to know when a policy will take effect and often causes counterproductive monetary policies?
- discount rate alterations
- reserve requirement changes
- long and variable time lags
A: long and variable time lags

Q: An implementation policy lag describes the length of time it
- takes before policy makers recognize that a recession or expansion is occurring.
- takes funds to be dispersed to government agencies.
- takes to enact a monetary or fiscal policy.
A: takes to enact a monetary or fiscal policy.

Q: A recognition policy lag describes the length of time it ________.
- takes to enact a monetary or fiscal policy.
- takes for policy impacts to be recognized.
- takes before policy makers recognize that a recession or expansion is occurring.
A: takes before policy makers recognize that a recession or expansion is occurring.

Q: Why does the legislative lag influence fiscal policy effectiveness?
- Because it takes time to collect data on the current state of the economy.
- Because it takes time to evaluate differences between states of the economy.
- Because it takes time for Congress to pass a bill.
A: Because it takes time for Congress to pass a bill.

Q: Why does the recognition lag influence fiscal policy effectiveness?
- Because it takes time to agree on a resolution.
- Because it takes time to evaluate differences between states of the economy.
- Because it takes time to collect data on the current state of the economy.
A: Because it takes time to collect data on the current state of the economy.

Q: Why does the effectiveness lag influence monetary policy effectiveness?
- Because collecting data on the current state of the economy takes time.
- Because to agree on a resolution takes time.
- Because businesses have to take time to change investment spending decisions.
A: Because businesses have to take time to change investment spending decisions.

Q: Why does the impact lag influence monetary policy effectiveness?
- Because it takes time to collect data on the current state of the economy.
- Because it takes time to agree on a resolution.
- Because it takes time for businesses to change investment spending decisions.
A: Because it takes time for businesses to change investment spending decisions.

Q: Countercyclical fiscal policies that stimulate an economy in a recession do NOT:
- increase cyclical unemployment while eventually causing inflation.
- increase unemployment above the natural rate without eventually causing inflation.
- reduce unemployment below the natural rate without eventually increasing inflation.
A: reduce unemployment below the natural rate without eventually increasing inflation.

Q: A countercyclical fiscal policy during a recession that effectively boosts an economy does NOT:
- increase cyclical unemployment eventually time causing inflation.
- boost unemployment above the natural rate without causing inflation.
- decrease unemployment below the natural rate without eventually increasing inflation.
A: decrease unemployment below the natural rate without eventually increasing inflation.

Q: Tax cuts that are explicitly temporary have less impact than permanent ones because
- temporary tax cuts are usually smaller than permanent ones.
- temporary tax cuts always have less effect on the budget deficit than permanent ones do.
- individuals and businesses do not change their behavior very much, since they do not expect the tax cuts to last.
A: individuals and businesses do not change their behavior very much, since they do not expect the tax cuts to last.

Q: Why is it that temporary tax cuts cause less of an impact than permanent ones?
- They are usually smaller than permanent tax cuts.
- They always affect a budget deficit less than permanent tax cuts.
- Because temporary tax cuts are for a short amount of time, firms and individuals only slightly change their behavior.
A: Because temporary tax cuts are for a short amount of time, firms and individuals only slightly change their behavior.

Q: Which of the following is a reason for effective policy making to help stabilize the economy?
- forecasting is imprecise
- long lags can exist
- permanent tax cuts
A: permanent tax cuts

Q: Select the reason below that helps to stabilize the economy by effective policy making?
- imprecise macroeconomic future forecasting
- xxisting legislative or data lags
- tax cuts that are permanent
A: tax cuts that are permanent

Q: The main reason that fiscal policy has lags is that
- it needs approval by the Fed.
- it changes due to interest rates.
- it needs legislative approval.
A: it needs legislative approval.

Q: What is the main reason that fiscal policy lags behind the current economic situation?
- Because fiscal policy needs approval by the Fed.
- Because fiscal policy changes are due to interest rate changes.
- Because fiscal policy requires approval by the legislative body.
A: Because fiscal policy requires approval by the legislative body.

Q: A neoclassical policy to address unemployment is likely to
- try to increase the natural rate of unemployment.
- offer larger or longer benefits for those who are unemployed.
- help to reduce obstacles that create frictional unemployment.
A: help to reduce obstacles that create frictional unemployment.

Q: Which of the following is unlikely to be a neoclassical policy to address unemployment?
- Trying to reduce the natural rate of unemployment.
- Helping to reduce obstacles that create frictional unemployment.
- Stimulating aggregate demand using fiscal or monetary policy.
A: Stimulating aggregate demand using fiscal or monetary policy.

Q: In a recessionary period of low economic output, a neoclassical economist would
- propose increases in the supply of money.
- propose increases in government spending.
- believe the economy will eventually rebound.
A: believe the economy will eventually rebound.

Q: In a recessionary period of low economic output, a neoclassical economist would:
- propose increases in the supply of money.
- propose increases in government spending.
- believe decreases in prices will eventually return the economy to potential output.
A: believe decreases in prices will eventually return the economy to potential output.

Q: How would Keynesian and neoclassical economics propose dealing with cyclical unemployment?
- Both would suggest an increase in aggregate demand by increasing government spending.
- Keynesians would suggest increasing government spending, while neoclassicals would suggest tax increases that stimulate productivity growth and labor demand.
- Keynesians would suggest an increase government spending, while neoclassicals would suggest doing nothing because the labor market will correct itself.
A: Keynesians would suggest an increase government spending, while neoclassicals would suggest doing nothing because the labor market will correct itself.

Q: How would you contrast and compare the various approaches to dealing with cyclical unemployment by Keynesian and neoclassical economics?
- Both would suggest an increase in aggregate supply by increasing government spending.
- Neoclassicals would suggest tax increases that stimulate productivity growth and labor demand. Keynesians would suggest increasing government spending.
- Neoclassicals would suggest doing nothing because the labor market will correct itself. Keynesians would suggest an increase in government spending.
A: Neoclassicals would suggest doing nothing because the labor market will correct itself. Keynesians would suggest an increase in government spending.

Q: A limitation of a countercyclical fiscal policy is that:
- it has a longer impact lag than monetary policy.
- It has a shorter implementation lag than monetary policy.
- higher taxes and lower spending can be politically difficult to achieve during economic booms.
A: higher taxes and lower spending can be politically difficult to achieve during economic booms.

Q: Which of the following is an example of discretionary countercyclical fiscal policy?
- Unemployment insurance
- Increasing interest rates as GDP growth accelerates
- Government infrastructure spending in a recession
A: Government infrastructure spending in a recession

Q: The experience of the 1970s taught economists that changes in:
- aggregate supply can affect the economy in the long run.
- aggregate demand can affect the economy in the long run.
- both aggregate demand and aggregate supply are important in understanding changes in the economy in the short run.
A: both aggregate demand and aggregate supply are important in understanding changes in the economy in the short run.

Q: After the 1970s, what did economists learn?
- In the long-run, an economy can be affected by changes in aggregate supply.
- In the long-run, an economy can be affected by changes in aggregate demand.
- Changes in the economy in the short-run are best understood by looking at both aggregate demand and aggregate supply.
A: Changes in the economy in the short-run are best understood by looking at both aggregate demand and aggregate supply.

Q: The experience of the 1970’s led Keynesian economists to understand that when it comes to aggregate supply and stagflation, policy responses
- were easier to implement and have successful results when using a contractionary monetary or fiscal policy.
- were easier to implement and have successful results when using a expansionary monetary or fiscal policy.
- had no good solution because using either an expansionary or contractionary policy lead to increasing either unemployment or inflation.
A: had no good solution because using either an expansionary or contractionary policy lead to increasing either unemployment or inflation.

Q: After the 1970’s stagflation, Keynesian economists now understand that when it comes to aggregate supply, policy responses in that type of economic scenario:
- were more successful when using a contractionary monetary or fiscal policy.
- were more successful when using a expansionary monetary or fiscal policy.
- lead to increasing either unemployment or inflation and offered no good economic solution regardless of policy type implemented.
A: lead to increasing either unemployment or inflation and offered no good economic solution regardless of policy type implemented.

Q: A negative supply shock will cause price levels and unemployment to ________.
- fall
- not change
- rise
A: rise

Q: How will a negative supply shock affect price levels and unemployment levels?
- A negative supply shock will make both levels fall.
- A negative supply shock will not change both types of levels.
- A negative supply shock will make both levels rise.
A: A negative supply shock will make both levels rise.

Q: If another period of stagflation occurs and shifts the AS curve to the left in the economy, what would happen if an expansionary fiscal or monetary policy is used to stimulate the economy?
- Lower inflation and unemployment and be a good economic solution.
- Lower inflation but boost unemployment and not a good economic solution.
- Lower unemployment but boost inflation and not a good economic solution.
A: Lower unemployment but boost inflation and not a good economic solution.

Q: If a period of stagflation occurs and shifts the AS curve to the left in the economy, what would happen if an contractionary fiscal or monetary policy is used to stimulate the economy?
- It would reduce inflation and unemployment and be a good economic solution.
- It would reduce unemployment but increase inflation and not be a good economic solution.
- It would reduce inflation but increase unemployment and not be a good economic solution.
A: It would reduce inflation but increase unemployment and not be a good economic solution.

Q: Experience in the 1970’s suggested that:
- monetary policy is not useful to combat recession.
- Keynesian aggregate demand policies are the most important policy tools to address recessions.
- recessions can be caused by shifts in both the short run supply curve and the aggregate demand curve.
A: recessions can be caused by shifts in both the short run supply curve and the aggregate demand curve.

Q: What were some of the economic takeaways from the experience in the 1970’s?
- Monetary policies are not helpful in combating recessions.
- Neoclassical aggregate supply policies are the most important policy tools to address recessions.
- Recessions can be caused by both the aggregate demand curve and the short run supply curve shifting.
A: Recessions can be caused by both the aggregate demand curve and the short run supply curve shifting.

Q: The experience of the Great Recession showed that when the economy is in a recession, from a Keynesian perspective, the government can increase its spending
- at the risk of crowding out private investment.
- without a need to rely on the expenditure multiplier effects.
- with minimal risk of crowding out private investment.
A: with minimal risk of crowding out private investment.

Q: From a neoclassical perspective, when the economy is in a recession if the government increases its spending it is
- with minimal risk of crowding out private investment.
- without a need to rely on the expenditure multiplier effects.
- at the risk of crowding out private investment.
A: at the risk of crowding out private investment.

Q: From a Keynesian view, during a recession, government investment in physical capital
- always generates positive returns to investment.
- has no risk of crowding out private investment in physical capital.
- helps increase the output and productivity of an economy.
A: helps increase the output and productivity of an economy.

Q: In a recession, government investment in physical capital, from a neoclassical perspective
- increases the output and productivity of an economy.
- always generates positive returns to investment.
- is not necessary and the focus should be on decreasing taxes to stimulate consumption.
A: is not necessary and the focus should be on decreasing taxes to stimulate consumption.

Q: Effective Keynesian government policies to promote long term economic growth might include:
- government unemployment benefits.
- government entitlement programs.
- grants for university research and development.
A: grants for university research and development.

Q: From a neoclassical point of view effective government policies to promote long term economic growth might include:
- government unemployment benefits.
- government investment in infrastructure.
- creating a stable economic environment through government taking a hands off approach.
A: creating a stable economic environment through government taking a hands off approach.

Q: Keynesians government policies include investments in capital. These include
- human capital investments such as immigration plans.
- financial capital investments such as government bonds.
- physical capital investments such as roads and bridges.
A: physical capital investments such as roads and bridges.

Q: According to Keynesian, policy during a recession government should investment in capital, which includes
- physical capital investments such as maintenance of federal office buildings.
- financial capital investments such as government treasury bills.
- human capital investments such as primary education.
A: human capital investments such as primary education.