Question 1

An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.

Accepted Answer

A) True 
 B)False

Question 2

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

Accepted Answer

A) True 
 B)False

Question 3

According to rational expectations theory, instantaneous market adjustments make

Accepted Answer

A)  expansionary economic policy more effective in increasing output.
B)  expansionary economic policy ineffective in increasing output.
C)  economic policy more rational and more stable.
D)  economic policy less rational and less stable.E) B) and D)
F) B) and C)

Question 4

According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the

Accepted Answer

A)  successes of macroeconomic policymakers
B)  inability of policymakers to time decisions properly.
C)  reaction of the public to the expected effects of policy changes.
D)  slow impact of policy to stimulate changes in real output and employment.E) A) and B)
F) A) and C)

Question 5

Real-business-cycle theory suggests that changes in

Accepted Answer

A)  monetary policy are the single most important cause of macroeconomic instability.
B)  investment spending will have a direct and significant effect on aggregate demand.
C)  technology and resources affect productivity, and thus the long-run growth of aggregate supply.
D)  the velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP.E) B) and C)
F) A) and D)

Question 6

(Last Word)  "Market monetarists" believe that the Fed should

Accepted Answer

A)  use stock market movements to adjust monetary policy.
B)  follow a strict monetary rule.
C)  use prediction markets to adjust monetary policy.
D)  use inflation targeting to adjust monetary policy.E) All of the above
F) A) and B)

Question 7

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results,

Accepted Answer

A)  a self-correction has occurred.
B)  an adverse aggregate supply shock has occurred.
C)  a coordination failure has occurred.
D)  a real-business downturn has occurred.E) C) and D)
F) A) and B)

Question 8

According to mainstream economists, a restrictive monetary policy might be frustrated, wholly or in part, by

Accepted Answer

A)  Treasury sales of gold bullion.
B)  a Treasury surplus.
C)  the desire of households and businesses to hold smaller money balances.
D)  a decrease in V.E) B) and C)
F) A) and D)

Question 9

In the strict monetarist view, a large increase in the money supply will have

Accepted Answer

A)  a large impact on the velocity of money and a large impact on nominal output.
B)  a large impact on the velocity of money and a small impact on nominal output.
C)  no effect on the velocity of money and a large impact on nominal output.
D)  no effect on the velocity of money and a small impact on the nominal output.E) A) and B)
F) A) and C)

Question 10

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Accepted Answer

A)  mainstream economists
B)  supply-side economists
C)  rational expectations economists
D)  functional finance economistsE) A) and B)
F) A) and C)

Question 12

The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the

Accepted Answer

A)  monetary rule.
B)  velocity of money.
C)  equation of exchange.
D)  crowding-out effect.E) All of the above
F) C) and D)

Question 13

Mainstream economists identify wage-price rigidities as one cause of economic instability.

Accepted Answer

A) True 
 B)False

Question 14

If M is $800, P is $2, and Q is 1,200, then

Accepted Answer

A)  aggregate expenditures will be $1,600.
B)  aggregate expenditures will be $960,000.
C)  V must be 3.
D)  V must be 1.5.E) A) and B)
F) None of the above

Question 15

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Accepted Answer

A)  reduce the severity of business cycles.
B)  increase the amount of instability in the economy.
C)  increase the rate of inflation.
D)  crowd out much-needed investment spending during times of rapid inflation.E) A) and B)
F) All of the above

Question 16

Monetarists take the position that monetary policy

Accepted Answer

A)  is limited by the crowding-out effect on investment.
B)  is enhanced by the crowding-out effect on investment.
C)  should be based on rules rather than discretion.
D)  should be based on discretion rather than rules.E) C) and D)
F) B) and D)

Question 17

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms.
M = $100 
V = 2
Ca = $160
Xn = $10
G = $10
Nominal GDP is

Accepted Answer

A)  $100.
B)  $200.
C)  $180.
D)  $50.E) All of the above
F) A) and D)

Question 18

If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will

Accepted Answer

A)  increase prices.
B)  increase interest rates.
C)  increase real output.
D)  decrease nominal GDP.E) A) and C)
F) All of the above

Question 19

In the insider-outsider theory,

Accepted Answer

A)  outsiders are workers who retain employment during recession.
B)  insiders are managers who have more information about their firms' performance than outsiders.
C)  insiders are "principals" and outsiders are "agents."
D)  outsiders are laid-off workers and other qualified unemployed workers.E) B) and C)
F) A) and B)

Question 20

The equation of exchange indicates that an increase in money supply will always lead only to inflation.

Accepted Answer

A) True 
 B)False

Exam 39: Current Issues in Macro Theory and Policy

In the strict monetarist view, a large increase in the money supply will have

Correct AnswerverifiedShow Answer

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Correct AnswerverifiedShow Answer

Monetarists take the position that monetary policy

Correct AnswerverifiedShow Answer

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results,

Correct AnswerverifiedShow Answer

The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the

Correct AnswerverifiedShow Answer

According to rational expectations theory, instantaneous market adjustments make

Correct AnswerverifiedShow Answer

If M is $800, P is $2, and Q is 1,200, then

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 Ca = $160 Xn = $10 G = $10 Nominal GDP is

Correct AnswerverifiedShow Answer

According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the

Correct AnswerverifiedShow Answer

Real-business-cycle theory suggests that changes in

Correct AnswerverifiedShow Answer

(Last Word) "Market monetarists" believe that the Fed should

Correct AnswerverifiedShow Answer

An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.

Correct AnswerverifiedShow Answer

In the insider-outsider theory,

Correct AnswerverifiedShow Answer

The equation of exchange indicates that an increase in money supply will always lead only to inflation.

Correct AnswerverifiedShow Answer

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Correct AnswerverifiedShow Answer

If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will

Correct AnswerverifiedShow Answer

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

Correct AnswerverifiedShow Answer

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Correct AnswerverifiedShow Answer

Mainstream economists identify wage-price rigidities as one cause of economic instability.

Correct AnswerverifiedShow Answer

According to mainstream economists, a restrictive monetary policy might be frustrated, wholly or in part, by

Correct AnswerverifiedShow Answer

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