Question 1

To determine the velocity of money,you would need to know:

Accepted Answer

A)   nominal GDP and real GDP.
B)   the money supply and the price level.
C)   nominal GDP and the money supply.
D)   nominal GDP and the interest rate.E) None of the above
F) All of the above

Question 2

The equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 3

The idea of coordination failures suggests the possibility of less-than-desirable price-level and real-output equilibriums in the economy.

Accepted Answer

A) True 
 B)False

Question 4

If the money supply is constant when both nominal and real GDP are rising,we can conclude that:

Accepted Answer

A)   tax rates have been increased.
B)   the velocity of money must be increasing.
C)   interest rates are falling.
D)   the unemployment rate is rising.E) A) and C)
F) None of the above

Question 5

New classical economists say that an unanticipated decrease in aggregate demand first:

Accepted Answer

A)   decreases the price level and real output,and then decreases long-run aggregate supply.
B)   decreases long-run aggregate supply,and then decreases the price level and real output.
C)   reduces short-run aggregate supply,and then reduces long-run aggregate supply.
D)   decreases the price level and real output,and then increases short-run aggregate supply such that the economy returns to the full-employment level of output.E) A) and B)
F) C) and D)

Question 6

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) A) and D)
F) B) and D)

Question 7

According to monetarists,an expansionary fiscal policy:

Accepted Answer

A)   will be ineffective because the interest rate will rise and crowd out private investment spending.
B)   should not be permitted so long as a public debt exists.
C)   should be used only when unemployment exceeds 6 percent of the labor force.
D)   will be effective,provided the money supply is held constant.E) All of the above
F) C) and D)

Question 8

The idea that the economy will "self-correct" when confronted with changes in aggregate demand is associated with new classical economics.

Accepted Answer

A) True 
 B)False

Question 9

Monetarists say:

Accepted Answer

A)   that,because P is stable,a change in M will change Q proportionately in the opposite direction.
B)   a change in the money supply will change aggregate demand and therefore the nominal GDP.
C)   a change in the money supply will change velocity,which in turn will change nominal GDP.
D)   a change in the money supply will change the interest rate,which will change investment spending and nominal GDP.E) All of the above
F) B) and C)

Question 10

The key policy target in the Taylor rule is the:

Accepted Answer

A)   money supply.
B)   federal funds interest rate.
C)   average tax rate.
D)   full-employment budget.E) B) and C)
F) C) and D)

Question 11

Efficiency wage theory says that an above-market wage can reduce labor costs per unit of output by eliciting greater work effort,lowering supervision costs,and reducing job turnover.

Accepted Answer

A) True 
 B)False

Question 12

In the insider-outsider theory:

Accepted Answer

A)   insiders 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 foreigners.E) None of the above
F) B) and C)

Question 13

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) All of the above
F) None of the above

Question 14

Rational expectations theory assumes that:

Accepted Answer

A)   people behave rationally and that all product and resource prices are flexible both upward and downward.
B)   firms pay above-market wages to elicit work effort.
C)   markets fail to coordinate the actions of households and businesses.
D)   markets are dominated by monopolistic firms.E) B) and C)
F) A) and B)

Question 15

Suppose that real GDP falls to 2 percent below potential GDP.Then,according to the Taylor rule,the Fed should reduce the federal funds,relative to the current rate of inflation,by:

Accepted Answer

A)   ½ percentage point.
B)   1 percentage point.
C)   2 percentage points.
D)   4 percentage points.E) A) and D)
F) None of the above

Question 16

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)   is accompanied by an offsetting decline in fringe benefits.
B)   increases supervision costs.
C)   reduces job turnover.
D)   increases worker absenteeism.E) A) and B)
F) B) and C)

Question 17

According to the equation of exchange,changes in the money supply can affect:

Accepted Answer

A)   only the velocity of money.
B)   both the price level and real output.
C)   only real output and employment.
D)   only the price level.E) A) and C)
F) B) and C)

Question 18

An efficiency wage is:

Accepted Answer

A)   a wage payment necessary to compensate workers for risk of injury on the job.
B)   a "wage" that contains a profit-sharing component as well as traditional hourly pay.
C)   an above-market wage that minimizes a firm's labor cost per unit of output.
D)   a wage that automatically rises with the national index of labor productivity.E) B) and D)
F) A) and B)

Question 19

Mainstream economists say that recessions are unlikely to occur today because prices and wages are highly flexible downward.

Accepted Answer

A) True 
 B)False

Question 20

New classical economists say that an unanticipated increase in aggregate demand first:

Accepted Answer

A)   increases the price level and real output,and then reduces short-run aggregate supply such that the economy returns to the full-employment level of output.
B)   increases the price level and real output,and then increases long-run aggregate supply.
C)   increases long-run aggregate supply,and then increases the price level and real output.
D)   reduces short-run aggregate supply,and then reduces long-run aggregate supply.E) A) and B)
F) None of the above

Exam 38: Current Issues in Macro Theory and Policy

According to monetarists,an expansionary fiscal policy:

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Economist Milton Friedman is most closely associated with:

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

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New classical economists say that an unanticipated decrease in aggregate demand first:

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Monetarists say:

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New classical economists say that an unanticipated increase in aggregate demand first:

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In the insider-outsider theory:

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To determine the velocity of money,you would need to know:

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The equation of exchange is MV = PQ.

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An efficiency wage is:

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The idea that the economy will "self-correct" when confronted with changes in aggregate demand is associated with new classical economics.

Correct AnswerverifiedShow Answer

If the money supply is constant when both nominal and real GDP are rising,we can conclude that:

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Mainstream economists say that recessions are unlikely to occur today because prices and wages are highly flexible downward.

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Rational expectations theory assumes that:

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The key policy target in the Taylor rule is the:

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According to the equation of exchange,changes in the money supply can affect:

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

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Suppose that real GDP falls to 2 percent below potential GDP.Then,according to the Taylor rule,the Fed should reduce the federal funds,relative to the current rate of inflation,by:

Correct AnswerverifiedShow Answer

Efficiency wage theory says that an above-market wage can reduce labor costs per unit of output by eliciting greater work effort,lowering supervision costs,and reducing job turnover.

Correct AnswerverifiedShow Answer

The idea of coordination failures suggests the possibility of less-than-desirable price-level and real-output equilibriums in the economy.

Correct AnswerverifiedShow Answer

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