Question 1

(Last Word)  Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate) , claiming primarily that it will

Accepted Answer

A)   promote economic stability by ensuring that total spending will grow at a predictable rate each year.
B)   prevent high rates of inﬂation.
C)   keep the economy at its natural rate of unemployment.
D)   prevent real GDP from growing too much.E) B) and C)
F) A) and D)

Question 2

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Accepted Answer

A)   mainstream macroeconomics.
B)   rational expectations theory.
C)   real-business-cycle theory.
D)   monetarism.E) A) and C)
F) B) and D)

Question 3

Real-business-cycle theory focuses on factors affecting

Accepted Answer

A)   aggregate demand.
B)   aggregate supply.
C)   the velocity of money.
D)   consumer spending.E) All of the above
F) A) and B)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Rational expectations theory allows for temporary changes in output due to expansionary policy,
whereas adaptive expectations theory holds that no such changes in output could occur.

Accepted Answer

A) True 
 B)False

Question 6

Explain the equation of exchange.

Accepted Answer

The fundamental equation of monetarism i...

Question 7

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) None of the above
F) All of the above

Question 8

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

Accepted Answer

A)   lesser work effort
B)   a lower wage rate
C)   increased job turnover
D)   reduced supervision costsE) B) and C)
F) All of the above

Question 9

In the equation of exchange, the level of aggregate expenditures is indicated by

Accepted Answer

A)   MV.
B)    MV/QM V / QMV/Q 
C)   PM.
D)    MV/P.M V / P .MV/P.E) B) and D)
F) A) and D)

Question 10

(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) B) and D)
F) C) and D)

Question 11

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

Accepted Answer

A)   artful Fed management of interest rates.
B)   inﬂation targeting.
C)   nominal GDP targeting.
D)   inﬂationary and recessionary gap analysis.E) A) and B)
F) B) and C)

Question 12

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) None of the above
F) A) and D)

Question 13

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

Accepted Answer

A)   the asset demand for money varies inversely with the rate of interest.
B)   government borrowing to ﬁnance a deﬁcit will raise the interest rate and reduce private investment.
C)   government borrowing will reduce the supply of money in circulation and depress the GDP.
D)   government borrowing to ﬁnance a deﬁcit will lower interest rates, increase money balances, and lower velocity.E) None of the above
F) B) and D)

Question 14

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

Accepted Answer

A)   2.5 times per year.
B)   2 times per year.
C)   1.6 times per year.
D)   16 times per year.E) B) and D)
F) B) and C)

Question 15

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Accepted Answer

A)   demand will have a large effect on the price level but a small effect on output.
B)   demand will have a small effect on the price level but a large effect on output.
C)   demand will have a large effect on the price level but no effect on output.
D)   supply will have a large effect on the price level but no effect on output.E) B) and C)
F) A) and B)

Question 16

1 to AS2 indicates the economy's average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by A)  zero percent per year. B)  4 percent per year. C)  10 percent per year. D)  30 percent per year.  " class="answers-bank-image d-inline" rel="preload" >
Answer this question based on the diagram and the equation of exchange. Assume that the velocity of money is constant at 4. Suppose that the increase of aggregate supply from A AS1 to AS2 indicates
the economy's average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by

Accepted Answer

A)   zero percent per year.
B)   4 percent per year.
C)   10 percent per year.
D)   30 percent per year.E) B) and C)
F) None of the above

Question 17

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Accepted Answer

A)   $140 billion.
B)   $180 billion.
C)   $220 billion.
D)   $260 billion.E) A) and C)
F) All of the above

Question 18

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Accepted Answer

A)   demand will have a large effect on the price level but a temporary effect on output.
B)   demand will have a small effect on the price level but a permanent effect on output.
C)   demand will have a large effect on the price level and a large effect on output.
D)   supply will have a large effect on the price level but a temporary effect on output.E) A) and B)
F) B) and C)

Question 19

New classical economists see the economy as incapable of self-correction when disturbed and
pushed away from its full-employment level of real output.

Accepted Answer

A) True 
 B)False

Question 20

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) B) and C)
F) A) and C)

Exam 19: Current Issues in Macro Theory and Policy

(Last Word) Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate) , claiming primarily that it will

Correct Answer
verified

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

Correct Answer
verified

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

Correct Answer
verified

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

Correct Answer
verified

Monetarists take the position that monetary policy

Correct Answer
verified

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

Correct Answer
verified

Real-business-cycle theory focuses on factors affecting

Correct Answer
verified

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

Correct Answer
verified

According to rational expectations theory, instantaneous market adjustments make

Correct Answer
verified

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

Correct Answer
verified

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Correct Answer
verified

Explain the equation of exchange.

Correct Answer
verified
The fundamental equation of monetarism i...
View Answer

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

Correct Answer
verified

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Correct Answer
verified

In the equation of exchange, the level of aggregate expenditures is indicated by

Correct Answer
verified

Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur.

Correct Answer
verified

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

(Last Word) Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate) , claiming primarily that it will

Correct AnswerverifiedShow Answer

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

Correct AnswerverifiedShow Answer

Monetarists take the position that monetary policy

Correct AnswerverifiedShow Answer

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

Correct AnswerverifiedShow Answer

Real-business-cycle theory focuses on factors affecting

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to rational expectations theory, instantaneous market adjustments make

Correct AnswerverifiedShow Answer

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

Correct AnswerverifiedShow Answer

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Correct AnswerverifiedShow Answer

Explain the equation of exchange.

Correct AnswerverifiedThe fundamental equation of monetarism i...View AnswerShow Answer

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

Correct AnswerverifiedShow Answer

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Correct AnswerverifiedShow Answer

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

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Correct AnswerverifiedShow Answer

In the equation of exchange, the level of aggregate expenditures is indicated by

Correct AnswerverifiedShow Answer

Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur.

Correct AnswerverifiedShow Answer

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Correct AnswerverifiedShow Answer

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The fundamental equation of monetarism i...
View Answer

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verified

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