Question 1

According to monetarists, a fiscal deficit will be associated with an increase in real output

Accepted Answer

A)  regardless of the character of accompanying changes in M or V.
B)  only if it is accompanied by an increase in the demand for money.
C)  only if it is accompanied by an increase in the supply of money.
D)  only if it is financed by selling government bonds to the public.E) A) and C)
F) All of the above

Question 2

One of the basic assumptions of rational expectations theory is that

Accepted Answer

A)  people can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy.
B)  people are not able to assess the future effects of policy changes, so government can use economic policy effectively.
C)  markets are not very competitive and fail to adjust quickly to changes in demand and supply.
D)  people expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly.E) A) and D)
F) A) and C)

Question 3

According to monetarists, a change in the money supply changes

Accepted Answer

A)  the velocity of money, which in turn changes the nominal GDP.
B)  investment spending, which in turn changes the nominal GDP.
C)  the interest rate, which in turn changes the nominal GDP.
D)  aggregate demand, which in turn changes the nominal GDP.E) B) and D)
F) B) and C)

Question 4

In new classical economics, a "price-level surprise"

Accepted Answer

A)  has no effect on the economy.
B)  causes a temporary change in real output.
C)  causes a permanent change in real output.
D)  can never occur since people correctly anticipate the future.E) All of the above
F) None of the above

Question 5

In the monetarist view,

Accepted Answer

A)  changes in investment spending are a major source of macroeconomic instability.
B)  inappropriate monetary policy is a major source of macroeconomic stability.
C)  adverse aggregate supply shocks are a major source of macroeconomic instability.
D)  the fact that prices and wages are flexible is a major source of macroeconomic instability.E) None of the above
F) B) and C)

Question 6

New classical economists

Accepted Answer

A)  stress the importance of federal budget deficits in stimulating aggregate demand.
B)  hold that, left alone, the economy gravitates to its full-employment level of output.
C)  emphasize tax cuts as means of increasing aggregate supply.
D)  advocate active use of monetary policy to stabilize the economy.E) A) and B)
F) B) and C)

Question 7

Mainstream economists question the new classical assumption that

Accepted Answer

A)  excessive growth of the money supply is a cause of inflation.
B)  the price level is determined by aggregate demand and aggregate supply.
C)  demand creates its own supply.
D)  wages and prices are equally flexible upward and downward.E) A) and B)
F) B) and D)

Question 8

Economist Milton Friedman compared the economy to a car needing

Accepted Answer

A)  an efficiency wage to make the labor markets work like an efficient engine.
B)  regular price-level surprises, like oil changes, to make it run smoothly.
C)  a "steering wheel" that the government can use to guide it forward.
D)  a monetary rule to prevent a "backseat driver" from making it go off course.E) All of the above
F) A) and B)

Question 9

The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n)

Accepted Answer

A)  decrease in the money supply will increase the price level.
B)  increase in the money supply will decrease the price level.
C)  increase in the money supply will increase the price level.
D)  decrease in the money supply will have no effect on the price level.E) A) and B)
F) B) and C)

Question 10

If firms are paying efficiency wages, they

Accepted Answer

A)  may be reluctant to increase nominal wages when aggregate demand increases.
B)  are highly vulnerable to import competition.
C)  may be targeted for takeover by firms paying market wages.
D)  may be reluctant to cut wages when aggregate demand declines.E) A) and B)
F) A) and C)

Question 11

With inflation targeting, the Federal Reserve would be required to announce its targeted band for

Accepted Answer

A)  unemployment.
B)  economic growth.
C)  changes in the price level.
D)  changes in the rate of taxation.E) None of the above
F) A) and C)

Question 12

The equation underlying the mainstream view of macroeconomics is

Accepted Answer

A)  MV = PQ.
B)  Ca + Ig + Xn + G = GDP.
C)  S = a − bY.
D)  GDP = P × Q.E) All of the above
F) B) and C)

Question 13

In new classical economics, the change in output caused by a "price-level surprise"

Accepted Answer

A)  is shown as a shift of the long-run aggregate supply curve.
B)  does not alter the rate of unemployment, even in the short run.
C)  is soon reversed through a shift of the short-run aggregate supply curve.
D)  permanently changes the rate of unemployment.E) All of the above
F) B) and D)

Question 14

Assume there is an increase in government spending and a reduction in net taxes.With a specific money supply, the consequent

Accepted Answer

A)  contractionary impact might be lessened by the resulting increase in the interest rate.
B)  expansionary impact might be lessened by the resulting increase in the interest rate.
C)  contractionary impact might be enhanced by the resulting decline in the interest rate.
D)  expansionary impact might be enhanced by the resulting decline in the interest rate.E) B) and D)
F) B) and C)

Question 15

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.

Accepted Answer

A) True 
 B)False

Question 16

If the nominal GDP is $477 billion and the velocity of money is 4.5, then the money supply is

Accepted Answer

A)  $122 billion.
B)  $98 billion.
C)  $106 billion.
D)  $477 billion.E) A) and C)
F) A) and D)

Question 17

Suppose laid-off workers and other qualified unemployed workers offer to work for less than the wages being paid existing employed workers, but employers do not hire these workers for fear that existing workers will refuse to cooperate with them.This situation best describes the

Accepted Answer

A)  efficiency wage theory.
B)  theory of compensating wage differentials.
C)  insider-outsider theory.
D)  rational expectations theory.E) B) and D)
F) A) and B)

Question 18

Which of the following is the basic equation underlying aggregate expenditures?

Accepted Answer

A)  MV = PQ
B)  AS = AD
C)  Saving = Income − Consumption
D)  Ca + Ig + Xn + G = GDPE) C) and D)
F) A) and D)

Question 19

If households and firms cut back on spending because they expect other households and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of

Accepted Answer

A)  insider-outsider relationships.
B)  efficiency wage theory.
C)  a coordination failure.
D)  a price-level surprise.E) C) and D)
F) All of the above

Question 20

The velocity of money is the

Accepted Answer

A)  relationship between the money supply and the price level.
B)  number of times per year the average dollar is spent on final goods and services.
C)  relationship between asset and transactions demands for money.
D)  price level divided by aggregate supply.E) B) and C)
F) All of the above

Exam 39: Current Issues in Macro Theory and Policy

According to monetarists, a fiscal deficit will be associated with an increase in real output

Correct AnswerverifiedShow Answer

Which of the following is the basic equation underlying aggregate expenditures?

Correct AnswerverifiedShow Answer

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.

Correct AnswerverifiedShow Answer

Suppose laid-off workers and other qualified unemployed workers offer to work for less than the wages being paid existing employed workers, but employers do not hire these workers for fear that existing workers will refuse to cooperate with them.This situation best describes the

Correct AnswerverifiedShow Answer

In the monetarist view,

Correct AnswerverifiedShow Answer

The equation underlying the mainstream view of macroeconomics is

Correct AnswerverifiedShow Answer

In new classical economics, the change in output caused by a "price-level surprise"

Correct AnswerverifiedShow Answer

If households and firms cut back on spending because they expect other households and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of

Correct AnswerverifiedShow Answer

The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n)

Correct AnswerverifiedShow Answer

Assume there is an increase in government spending and a reduction in net taxes.With a specific money supply, the consequent

Correct AnswerverifiedShow Answer

New classical economists

Correct AnswerverifiedShow Answer

If firms are paying efficiency wages, they

Correct AnswerverifiedShow Answer

According to monetarists, a change in the money supply changes

Correct AnswerverifiedShow Answer

The velocity of money is the

Correct AnswerverifiedShow Answer

One of the basic assumptions of rational expectations theory is that

Correct AnswerverifiedShow Answer

Economist Milton Friedman compared the economy to a car needing

Correct AnswerverifiedShow Answer

Mainstream economists question the new classical assumption that

Correct AnswerverifiedShow Answer

If the nominal GDP is $477 billion and the velocity of money is 4.5, then the money supply is

Correct AnswerverifiedShow Answer

With inflation targeting, the Federal Reserve would be required to announce its targeted band for

Correct AnswerverifiedShow Answer

In new classical economics, a "price-level surprise"

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified