Question 1

In comparing monetarism and rational expectations theory,we find that:

Accepted Answer

A)   both favor policy rules and for the same reasons.
B)   both favor policy rules,but for different reasons.
C)   both favor discretionary policies.
D)   the former favors discretionary policy,while the latter favors policy rules.E) B) and C)
F) A) and B)

Question 2

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

Question 3

In the insider-outsider theory,insiders are agents and outsiders are principals.

Accepted Answer

A) True 
 B)False

Question 4

(Consider This) The 2007-2009 recession began with reductions in investment and consumption spending,precipitated by a financial crisis.This explanation for the recession is consistent with:

Accepted Answer

A)   the monetarist view of macroeconomic instability.
B)   the rational expectations view of macroeconomic instability.
C)   the mainstream view of macroeconomic instability.
D)   none of these views of macroeconomic instability.E) All of the above
F) B) and D)

Question 5

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 6

According to the Taylor rule,if real GDP rises 1 percent above potential GDP,the Fed should raise the federal funds rate,relative to the current rate of inflation,by:

Accepted Answer

A)   0.5 percentage point.
B)   1 percentage point.
C)   1.5 percentage points.
D)   2 percentage points.E) A) and D)
F) None of the above

Question 7

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100
V = 2
Ca = $160
Xn = $10
G = $10
Refer to the given information.If the price level P is 4,Q is:

Accepted Answer

A)   50.
B)   100.
C)   200.
D)   500.E) A) and D)
F) A) and C)

Question 8

The basic equation of monetarism is:

Accepted Answer

A)   MV = PQ.
B)   Sa + T + M = Ig + G + Xn.
C)   V = M/PQ.
D)   Ca + Ig + Xn + G = GDP.E) All of the above
F) B) and C)

Question 9

The mainstream view of macro instability is that:

Accepted Answer

A)   changes in the money supply directly cause changes in aggregate demand and thus cause changes in real GDP.
B)   changes in investment shift the aggregate demand curve and thus cause changes in real GDP.
C)   bursts of innovation put the economy on an unsustainable growth path,eventually producing recession.
D)   changes in technology and resource availability are the two main sources of fluctuations of real GDP.E) C) and D)
F) All of the above

Question 10

According to mainstream economists,the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to:

Accepted Answer

A)   reduce the severity of business cycles.
B)   increase the amount of instability in the economy.
C)   increase the rate of inflation.
D)   crowd out much-needed investment spending during times of rapid inflation.E) A) and D)
F) A) and C)

Question 11

Mainstream economists favor:

Accepted Answer

A)   the use of discretionary monetary policy and fiscal policy.
B)   a monetary rule.
C)   a balanced-budget amendment.
D)   wage and price controls.E) A) and B)
F) C) and D)

Question 12

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100
V = 2
Ca = $160
Xn = $10
G = $10
Refer to the given information.In equilibrium,Ig is:

Accepted Answer

A)   $20.
B)   $10.
C)   $5.
D)   $50.E) B) and C)
F) C) and D)

Question 13

According to new classical economists,the:

Accepted Answer

A)   short-run demand for labor curve is vertical.
B)   short-run aggregate demand curve is vertical.
C)   long-run aggregate supply curve is horizontal.
D)   long-run aggregate supply curve is vertical.E) All of the above
F) A) and B)

Question 14

Assume there is an increase in government spending and a reduction in net taxes.With a specific money supply,the consequent:

Accepted Answer

A)   contractionary impact might be lessened by the resulting increase in the interest rate.
B)   expansionary impact might be lessened by the resulting increase in the interest rate.
C)   contractionary impact might be enhanced by the resulting decline in the interest rate.
D)   expansionary impact might be enhanced by the resulting decline in the interest rate.E) C) and D)
F) B) and C)

Question 15

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

Question 16

(Consider This) According to economist Abba Lerner (1903-1982) ,fiscal and monetary policy is analogous to:

Accepted Answer

A)   automobile brakes.
B)   a steering wheel in an automobile.
C)   a string that can be pushed or pulled.
D)   highway guard rails.E) B) and D)
F) C) and D)

Question 17

If prices and wages are inflexible downward,a decrease in aggregate demand will:

Accepted Answer

A)   reduce the price level but not real output.
B)   increase short-run aggregate supply.
C)   decrease short-run aggregate supply.
D)   reduce real output but not the price level.E) All of the above
F) None of the above

Question 18

New classical economists say that a fully anticipated decrease in aggregate demand:

Accepted Answer

A)   shifts the long-run aggregate supply curve to the right.
B)   shifts the long-run aggregate supply curve to the left.
C)   moves the economy down along its vertical long-run aggregate supply curve.
D)   eventually results in a self-correcting increase in aggregate demand.E) B) and C)
F) A) and B)

Question 19

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion,then the:

Accepted Answer

A)   circulation period of money must be one-fourth of a year.
B)   velocity of money is 4.
C)   average price per final good sold is $3.
D)   velocity of money is 3.E) B) and C)
F) A) and D)

Question 20

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

Exam 38: Current Issues in Macro Theory and Policy

Assume there is an increase in government spending and a reduction in net taxes.With a specific money supply,the consequent:

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

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In comparing monetarism and rational expectations theory,we find that:

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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

According to the Taylor rule,if real GDP rises 1 percent above potential GDP,the Fed should raise the federal funds rate,relative to the current rate of inflation,by:

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In the real-business-cycle theory:

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The basic equation of monetarism is:

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If prices and wages are inflexible downward,a decrease in aggregate demand will:

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According to new classical economists,the:

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Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 Ca = $160 Xn = $10 G = $10 Refer to the given information.In equilibrium,Ig is:

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If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion,then the:

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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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In the insider-outsider theory,insiders are agents and outsiders are principals.

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(Consider This) The 2007-2009 recession began with reductions in investment and consumption spending,precipitated by a financial crisis.This explanation for the recession is consistent with:

Correct AnswerverifiedShow Answer

The mainstream view of macro instability is that:

Correct AnswerverifiedShow Answer

New classical economists say that a fully anticipated decrease in aggregate demand:

Correct AnswerverifiedShow Answer

(Consider This) According to economist Abba Lerner (1903-1982) ,fiscal and monetary policy is analogous to:

Correct AnswerverifiedShow Answer

According to mainstream economists,the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to:

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 Ca = $160 Xn = $10 G = $10 Refer to the given information.If the price level P is 4,Q is:

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Mainstream economists favor:

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Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 C_a = $160 X_n = $10 G = $10 Refer to the given information.In equilibrium,I_g is:

Correct Answer
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Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 C_a = $160 X_n = $10 G = $10 Refer to the given information.If the price level P is 4,Q is:

Correct Answer
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Correct Answer
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