Question 1

1 to AD2 will A)  move the economy from a to b to c. B)  move the economy directly from a to c. C)  move the economy from a to a new equilibrium at b. D)  shift the AS curve to the right." class="answers-bank-image d-inline" rel="preload" >
Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will

Accepted Answer

A)   move the economy from a to b to c.
B)   move the economy directly from a to c.
C)   move the economy from a to a new equilibrium at b.
D)   shift the AS curve to the right.E) A) and C)
F) C) and D)

Question 2

A coordination failure is said to occur when people do not reach a mutually beneﬁcial equilibrium
because they lack some way to jointly coordinate their actions to achieve it.

Accepted Answer

A) True 
 B)False

Question 3

The equation of exchange indicates that

Accepted Answer

A)   MV = PQ.
B)   other things equal, an increase in the demand for money will increase  P and/or Q. P 	ext { and/or } Q 	ext {. }P and/or Q.  
C)   the velocity and the supply of money vary directly with one another.
D)   MP = VQ. E) A) and B)
F) A) and C)

Question 4

Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

Accepted Answer

A)   monetarism
B)   mainstream economics
C)   rational expectations
D)   new classical economicsE) C) and D)
F) B) and C)

Question 5

As monetarists view the equation of exchange,

Accepted Answer

A)   V changes erratically and unpredictably.
B)   V is quite stable.
C)   V usually changes in the same direction of any given change in M.
D)   V usually changes in the opposite direction of any given change in M.E) A) and D)
F) B) and C)

Question 6

At the equilibrium level of GDP,

Accepted Answer

A)   MV = nominal GDP.
B)   MV = real GDP.
C)   M = nominal GDP.
D)    V=1/MPSV = 1 / \mathrm { MPS }V=1/MPSE) A) and B)
F) All of the above

Question 7

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

Accepted Answer

A)   monetarism
B)   mainstream economics
C)   supply-side economics
D)   rational expectations theoryE) A) and C)
F) B) and D)

Question 8

Proponents of inﬂation targeting generally think that

Accepted Answer

A)   the economy will have fewer, shorter, and less severe business cycles if the Fed holds the rate of inﬂation to low, targeted levels from year to year.
B)   low interest rates are inﬂationary and high interest rates are deﬂationary.
C)   ﬁscal policy is more effective in stabilizing the economy than monetary policy.
D)   the Fed should strive to achieve zero inﬂation.E) All of the above
F) A) and D)

Question 9

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to
monetarists who believe that monetary policy is a stabilizing factor.

Accepted Answer

A) True 
 B)False

Question 10

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

Accepted Answer

A)   increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged.
B)   increase in aggregate demand by an equal amount, so real output and the price level would increase.
C)   decrease in aggregate demand, so real output would increase and the price level would decrease.
D)   decrease in aggregate demand, so real output and the price level would increase.E) A) and B)
F) B) and C)

Question 11

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

Question 12

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

Question 13

The theory of rational expectations calls for monetary policy rules because

Accepted Answer

A)   of past policy errors.
B)   policy tends to be countercyclical.
C)   of the inability to time policy decisions.
D)   of the reaction of the public to the expected effects of policy.E) B) and D)
F) B) and C)

Question 14

Monetarists say that ﬁscal policy, such as a tax cut, will only affect the level of real GDP if it entails a
change in the supply of money.

Accepted Answer

A) True 
 B)False

Question 15

2 to AD1 will A)  move the economy from a to b to c. B)  shift the AS curve to the left. C)  move the economy from c to a new equilibrium at b. D)  move the economy directly from c to a." class="answers-bank-image d-inline" rel="preload" >
Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will

Accepted Answer

A)   move the economy from a to b to c.
B)   shift the AS curve to the left.
C)   move the economy from c to a new equilibrium at b.
D)   move the economy directly from c to a.E) B) and D)
F) A) and C)

Question 16

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending. Also suppose that all households and
Consumers would be better off if they did not reduce their spending. This situation best describes
The

Accepted Answer

A)   real-business-cycle theory.
B)   rational expectations theory.
C)   concept of coordination failures.
D)   adaptive expectations theory.E) A) and B)
F) A) and C)

Question 17

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Accepted Answer

A)   has decreased historically because of increased accessibility to credit.
B)   rises during recession and falls during periods of full employment.
C)   falls during recession and rises during periods of full employment.
D)   is relatively stable.E) A) and C)
F) A) and D)

Question 18

List the four different views of the causes of macroeconomic instability in the economy.

Accepted Answer

The four different views of th...

Question 19

If the economy diverges from its full-employment output, new classical economics would suggest that

Accepted Answer

A)   a change in the velocity of money would be all that is needed to return it to its full- employment output.
B)   an improvement in insider-outsider relationships is all that is needed to return it to its full- employment output.
C)   an eﬃciency wage in the economy would return it to its full-employment output.
D)   internal mechanisms within the economy would automatically return it to its full- employment output.E) All of the above
F) None of the above

Question 20

The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

Accepted Answer

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

Exam 19: Current Issues in Macro Theory and Policy

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending. Also suppose that all households and Consumers would be better off if they did not reduce their spending. This situation best describes The

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The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

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Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will

Correct AnswerverifiedShow Answer

Proponents of inﬂation targeting generally think that

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Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor.

Correct AnswerverifiedShow Answer

As monetarists view the equation of exchange,

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If the economy diverges from its full-employment output, new classical economics would suggest that

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In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

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In the monetarist view,

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At the equilibrium level of GDP,

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A coordination failure is said to occur when people do not reach a mutually beneﬁcial equilibrium because they lack some way to jointly coordinate their actions to achieve it.

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The theory of rational expectations calls for monetary policy rules because

Correct AnswerverifiedShow Answer

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Correct AnswerverifiedShow Answer

Monetarists say that ﬁscal policy, such as a tax cut, will only affect the level of real GDP if it entails a change in the supply of money.

Correct AnswerverifiedShow Answer

List the four different views of the causes of macroeconomic instability in the economy.

Correct AnswerverifiedThe four different views of th...View AnswerShow Answer

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

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

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The equation of exchange indicates that

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Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

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Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will

Correct AnswerverifiedShow Answer

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Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD₁ to AD₂ will

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The four different views of th...
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Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD₂ to AD₁ will

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