Question 1

At the equilibrium level of GDP:

Accepted Answer

A)   MV = nominal GDP.
B)   MV = real GDP.
C)   M = nominal GDP.
D)   V = 1/MPS.E) A) and C)
F) B) and D)

Question 2

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 economists.E) A) and B)
F) None of the above

Question 3

In the equation of exchange,the nominal GDP is designated by:

Accepted Answer

A)   PQ/M.
B)   MV/P.
C)   PQ.
D)   MV.E) A) and B)
F) A) and C)

Question 4

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 B)
F) All of the above

Question 5

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) A) and D)
F) C) and D)

Question 6

According to mainstream macroeconomists,U.S.macro instability has resulted from:

Accepted Answer

A)   investment "booms" and "busts" and,occasionally,adverse aggregate supply shocks.
B)   adherence by the Fed to a monetary rule.
C)   government's attempts to balance its budget.
D)   wide fluctuations in net exports.E) A) and B)
F) A) and D)

Question 7

In the equation of exchange,V indicates the:

Accepted Answer

A)   value or purchasing power of the dollar.
B)   number of times per year the average dollar is spent.
C)   quantity of real output.
D)   reciprocal of the price level.E) A) and D)
F) A) and B)

Question 8

The velocity of money is equal to:

Accepted Answer

A)   1/MPS.
B)   1/reserve ratio.
C)   M/GDP.
D)   none of these.E) None of the above
F) A) and B)

Question 9

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

Question 10

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and,occasionally,adverse aggregate supply shocks.

Accepted Answer

A) True 
 B)False

Question 11

Monetarists believe that:

Accepted Answer

A)   prices and wages are inflexible or sticky.
B)   both product and resource markets are monopolistic.
C)   velocity is relatively stable.
D)   the economy is more stable when active fiscal and monetary policy are used.E) C) and D)
F) A) and B)

Question 12

Which of the following groups of economists believe that cost-push inflation is impossible in the long run without excessive monetary growth?

Accepted Answer

A)   Mainstream economists and monetarists.
B)   Mainstream economists and rational expectations economists.
C)   Monetarists and rational expectations economists.
D)   Mainstream economists,monetarists,and rational expectations economists.E) A) and B)
F) A) and C)

Question 13

The real-business-cycle theory holds that business fluctuations are caused by:

Accepted Answer

A)   factors affecting aggregate demand.
B)   incorrectly anticipated government stabilization policies.
C)   significant changes in technology and resource availability.
D)   "stop-and-go" monetary policies.E) A) and D)
F) B) and D)

Question 14

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

Question 15

The traditional monetary rule is the idea that:

Accepted Answer

A)   the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP.
B)   the annual rate of increase in the money supply should be equal to the long-term increase in the price level.
C)   an expansionary fiscal policy should always be accompanied by an easy monetary policy.
D)   monetary policy only affects the economy 6 to 9 months after the money supply is changed.E) None of the above
F) A) and D)

Question 16

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) All of the above
F) A) and B)

Question 17

If a certain household earns and spends $24,000 per year and,on the average,holds a money balance of $6,000,then the velocity of money for this household is:

Accepted Answer

A)   6.
B)   1/6.
C)   4.
D)   1/4.E) All of the above
F) A) and C)

Question 18

Suppose that,as expected,aggregate demand in the economy sharply declines.New classical economists say that the price level will _____________ and real output will ____________.

Accepted Answer

A)   fall;remain constant
B)   fall;fall
C)   remain constant;fall
D)   remain constant;riseE) None of the above
F) B) and D)

Question 19

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 C)
F) None of the above

Question 20

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

Exam 38: Current Issues in Macro Theory and Policy

At the equilibrium level of GDP:

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In the equation of exchange,the nominal GDP is designated by:

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Suppose that,as expected,aggregate demand in the economy sharply declines.New classical economists say that the price level will _____________ and real output will ____________.

Correct AnswerverifiedShow Answer

According to mainstream macroeconomists,U.S.macro instability has resulted from:

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Which of the following groups of economists believe that cost-push inflation is impossible in the long run without excessive monetary growth?

Correct AnswerverifiedShow Answer

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

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In the insider-outsider theory:

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The real-business-cycle theory holds that business fluctuations are caused by:

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According to monetarists,a change in the money supply changes:

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Monetarists believe that:

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The velocity of money is equal to:

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If a certain household earns and spends $24,000 per year and,on the average,holds a money balance of $6,000,then the velocity of money for this household is:

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Modern mainstream macroeconomists agree with the monetarists that:

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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

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and,occasionally,adverse aggregate supply shocks.

Correct AnswerverifiedShow Answer

In the equation of exchange,V indicates the:

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The traditional monetary rule is the idea that:

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The real-business-cycle theory:

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Suppose that,as expected,aggregate demand in the economy sharply declines.New classical economists say that the price level will _ and real output will .

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