Question 1

According to real-business-cycle theory,

Accepted Answer

A)   monetary factors affecting aggregate demand cause macroeconomic instability.
B)   recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand.
C)   when real wages fall during recessions, "real" unemployment rates rise.
D)   the net long-run costs of business ﬂuctuations are severe.E) C) and D)
F) B) and C)

Question 2

The real-business-cycle theory

Accepted Answer

A)   is a monetarist view of the business cycle.
B)   is the mainstream view of the business cycle.
C)   assumes that the supply of money is constant.
D)   says that macro instability results from shifts in the long-run aggregate supply curve.E) B) and D)
F) B) and C)

Question 3

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Accepted Answer

A)   decrease in short-run aggregate supply, so output returns to its initial level but the price level rises.
B)   decrease in short-run aggregate supply, so output increases and the price level rises.
C)   decrease in short-run aggregate supply, so output returns to its initial level and the price level falls.
D)   increase in short-run aggregate supply, so output increases and the price level rises.E) A) and C)
F) B) and C)

Question 4

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 5

The rational expectations perspective suggests that

Accepted Answer

A)   ﬁscal policy is more powerful than monetary policy.
B)   monetary policy is more powerful than ﬁscal policy.
C)   ﬁscal and monetary policy are not likely to achieve their stated aims.
D)   ﬁscal policy works only to the extent that it is accompanied by fully anticipated changes in the money supply.E) C) and D)
F) None of the above

Question 6

Modern mainstream macroeconomists agree with the monetarists that

Accepted Answer

A)   the Fed should increase the money supply at a ﬁxed annual rate.
B)   velocity is highly stable.
C)   ﬁscal policy is largely ineffective.
D)   "money matters" in the macroeconomy.E) C) and D)
F) B) and D)

Question 7

Economist Milton Friedman is most closely associated with

Accepted Answer

A)   Keynesian economics.
B)   the rational expectations theory.
C)   supply-side economics.
D)   monetarism.E) C) and D)
F) None of the above

Question 8

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Accepted Answer

A)   brings forth greater work effort.
B)   increases supervision costs.
C)   increases job turnover.
D)   increases worker absenteeism.E) A) and D)
F) A) and C)

Question 9

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

Accepted Answer

A)   the buying of government securities by the Treasury.
B)   the selling of government securities by the Treasury.
C)   a cut in the Federal funds rate.
D)   a cut in the discount rate.E) None of the above
F) A) and D)

Question 10

Accepted Answer

A)   supply creates its own demand.
B)   nominal wages are (at least for a time)  inﬂexible downward.
C)   ﬁrms misperceive the price-level decline as being permanent.
D)   deﬂation reduces the purchasing power of the dollar.E) None of the above
F) All of the above

Question 11

The velocity of money measures the

Accepted Answer

A)   proportion of the money supply held as an asset.
B)   ratio of the transactions demand to the asset demand for money.
C)   average annual rate of increase in the money supply.
D)   number of times per year the average dollar is spent on ﬁnal goods and services.E) A) and B)
F) A) and C)

Question 12

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict
Monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by

Accepted Answer

A)   $13 billion.
B)   $24 billion.
C)   $72 billion.
D)   $80 billion.E) A) and D)
F) None of the above

Question 13

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Accepted Answer

A)   unanticipated price level change.
B)   fully anticipated price level change.
C)   mutually beneﬁcial equilibrium.
D)   insider-outsider relationship.E) A) and C)
F) A) and B)

Question 14

In the real-business-cycle theory,

Accepted Answer

A)   declines in real output cause declines in the money supply and thus aggregate demand.
B)   decreases in long-run aggregate supply are fully anticipated and therefore do not reduce real output.
C)   technology is constant.
D)   economic instability results from inappropriate monetary policy.E) A) and B)
F) A) and C)

Question 15

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary
policy and their criticisms of policy rules.

Accepted Answer

Mainstream economists think that discret...

Question 16

From a rational expectations perspective, an easy money policy is likely to be completely

Accepted Answer

A)   ineffective unless the increase in the money supply is unanticipated.
B)   effective unless the increase in the money supply is unanticipated.
C)   ineffective unless the increase in the money supply is anticipated.
D)   effective unless the increase in the money supply is anticipated.E) A) and D)
F) C) and D)

Question 17

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Accepted Answer

A)   5 percent.
B)   2 percent.
C)   0 percent.
D)   8 percent.E) C) and D)
F) A) and B)

Question 18

Mainstream macroeconomics has embraced the

Accepted Answer

A)   rational expectations view that stabilization policy is totally ineffective.
B)   monetarist view that the Fed should increase the money supply at a ﬁxed annual rate.
C)   rational expectations view that expectations can shift the aggregate demand and aggregate supply curves.
D)   monetarist view that an increase in government spending crowds out an equal amount of investment spending.E) All of the above
F) A) and B)

Question 19

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will
occur.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 19: Current Issues in Macro Theory and Policy

In the real-business-cycle theory,

Correct Answer
verified

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 Answer
verified

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary policy and their criticisms of policy rules.

Correct Answer
verified
Mainstream economists think that discret...
View Answer

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict Monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by

Correct Answer
verified

The rational expectations perspective suggests that

Correct Answer
verified

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Correct Answer
verified

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will occur.

Correct Answer
verified

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

Correct Answer
verified

Modern mainstream macroeconomists agree with the monetarists that

Correct Answer
verified

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

Correct Answer
verified

The velocity of money measures the

Correct Answer
verified

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Correct Answer
verified

Mainstream macroeconomics has embraced the

Correct Answer
verified

According to real-business-cycle theory,

Correct Answer
verified

From a rational expectations perspective, an easy money policy is likely to be completely

Correct Answer
verified

Economist Milton Friedman is most closely associated with

Correct Answer
verified

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Correct Answer
verified

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Correct Answer
verified

The real-business-cycle theory

Correct Answer
verified

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

In the real-business-cycle theory,

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

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary policy and their criticisms of policy rules.

Correct AnswerverifiedMainstream economists think that discret...View AnswerShow Answer

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict Monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by

Correct AnswerverifiedShow Answer

The rational expectations perspective suggests that

Correct AnswerverifiedShow Answer

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Correct AnswerverifiedShow Answer

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will occur.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Modern mainstream macroeconomists agree with the monetarists that

Correct AnswerverifiedShow Answer

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

Correct AnswerverifiedShow Answer

The velocity of money measures the

Correct AnswerverifiedShow Answer

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Correct AnswerverifiedShow Answer

Mainstream macroeconomics has embraced the

Correct AnswerverifiedShow Answer

According to real-business-cycle theory,

Correct AnswerverifiedShow Answer

From a rational expectations perspective, an easy money policy is likely to be completely

Correct AnswerverifiedShow Answer

Economist Milton Friedman is most closely associated with

Correct AnswerverifiedShow Answer

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Correct AnswerverifiedShow Answer

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Correct AnswerverifiedShow Answer

The real-business-cycle theory

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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verified
Mainstream economists think that discret...
View Answer

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