Question 1

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.

Accepted Answer

A) True 
 B)False

Question 2

Rational expectations theory suggests that changes in people's expectations in response to changes in fiscal and monetary policy changes will make such policy-changes ineffective.

Accepted Answer

A) True 
 B)False

Question 3

If nominal GDP is $848 billion and the velocity of money is 4, then the:

Accepted Answer

A)   Money supply is $170 billion
B)   Money supply is $212 billion
C)   Consumer price index is 340
D)   Average level of prices is $170 billionE) B) and C)
F) C) and D)

Question 4

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the:

Accepted Answer

A)   Velocity of money is 5
B)   Money supply is $40 billion
C)   Level of the price index is 320
D)   Equilibrium level of GDP is $320 billionE) A) and B)
F) C) and D)

Question 5

Monetarists would argue that the severe recession of 2007-2009 was primarily caused by:

Accepted Answer

A)   Adverse aggregate-supply shocks causing tremendous unemployment
B)   Wide swings in investment expenditures driving erratic fluctuations in aggregate demand
C)   Excessive money supply creating a bubble in some sectors of the economy
D)   Too much deregulation of the financial sector in previous yearsE) B) and D)
F) A) and D)

Question 6

Which monetarist idea has been absorbed into mainstream macroeconomics?

Accepted Answer

A)   The net export effect has a stronger effect on fiscal policy than monetary policy
B)   Cuts in tax rates significantly increase the productive capacity of the economy over the historical averages
C)   Excessive growth in the money supply over long periods leads to inflation
D)   The Federal funds rate is a more important monetary target than the money supplyE) A) and C)
F) B) and C)

Question 7

The equation of exchange indicates that:

Accepted Answer

A)   MQ equals VP
B)   The velocity of money and the supply of money vary proportionately with one another
C)   Other things being equal, an increase in V will increase P and/or Q
D)   Other things being equal, M and P are inversely relatedE) A) and B)
F) None of the above

Question 8

Economist Abba Lerner compared the economy to a car needing:

Accepted Answer

A)   An efficiency wage to make the labor markets work like an efficient engine
B)   Regular price-level surprises, like oil changes, to make it run smoothly
C)   A "steering wheel" that the government can use to guide it forward
D)   A monetary rule to prevent a "backseat driver" from making it go off courseE) C) and D)
F) B) and D)

Question 9

From a monetarist perspective, instability in the macro economy arises from:

Accepted Answer

A)   Secular trends in the economy
B)   The instability of velocity as a policy tool
C)   Discretionary changes in monetary policy
D)   The use of a monetary rule for monetary policyE) B) and C)
F) A) and C)

Question 10

In the strict monetarist view, a large increase in the money supply will have:

Accepted Answer

A)   A large impact on the velocity of money and a large impact on nominal output
B)   A large impact on the velocity of money and a small impact on nominal output
C)   No effect on the velocity of money and a large impact on nominal output
D)   No effect on the velocity of money and a small impact on the nominal outputE) A) and B)
F) A) and C)

Question 11

According to mainstream economic analysis, a balanced-budget rule for fiscal policy would be:

Accepted Answer

A)   Countercyclical
B)   Ineffective
C)   Destabilizing
D)   Pro-growthE) A) and D)
F) C) and D)

Question 12

In the monetarist equation of exchange, MV is the monetarist counterpart of:

Accepted Answer

A)   Money supply
B)   Aggregate expenditures
C)   Total saving
D)   Government spendingE) B) and C)
F) A) and D)

Question 13

Monetarists argue that when expansionary fiscal policy is financed through borrowing:

Accepted Answer

A)   Monetary policy becomes tight
B)   Private investment spending will be crowded out
C)   The demand for money and interest rates both decrease
D)   The investment demand curve becomes relatively steepE) All of the above
F) A) and D)

Question 14

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Accepted Answer

A) True 
 B)False

Exam 19: Current Issues in Macro Theory and Policy

The equation of exchange indicates that:

Correct Answer
verified

Which monetarist idea has been absorbed into mainstream macroeconomics?

Correct Answer
verified

Rational expectations theory suggests that changes in people's expectations in response to changes in fiscal and monetary policy changes will make such policy-changes ineffective.

Correct Answer
verified

From a monetarist perspective, instability in the macro economy arises from:

Correct Answer
verified

Monetarists would argue that the severe recession of 2007-2009 was primarily caused by:

Correct Answer
verified

Monetarists argue that when expansionary fiscal policy is financed through borrowing:

Correct Answer
verified

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.

Correct Answer
verified

In the strict monetarist view, a large increase in the money supply will have:

Correct Answer
verified

According to mainstream economic analysis, a balanced-budget rule for fiscal policy would be:

Correct Answer
verified

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the:

Correct Answer
verified

In the monetarist equation of exchange, MV is the monetarist counterpart of:

Correct Answer
verified

Economist Abba Lerner compared the economy to a car needing:

Correct Answer
verified

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Correct Answer
verified

If nominal GDP is $848 billion and the velocity of money is 4, then the:

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

The equation of exchange indicates that:

Correct AnswerverifiedShow Answer

Which monetarist idea has been absorbed into mainstream macroeconomics?

Correct AnswerverifiedShow Answer

Rational expectations theory suggests that changes in people's expectations in response to changes in fiscal and monetary policy changes will make such policy-changes ineffective.

Correct AnswerverifiedShow Answer

From a monetarist perspective, instability in the macro economy arises from:

Correct AnswerverifiedShow Answer

Monetarists would argue that the severe recession of 2007-2009 was primarily caused by:

Correct AnswerverifiedShow Answer

Monetarists argue that when expansionary fiscal policy is financed through borrowing:

Correct AnswerverifiedShow Answer

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.

Correct AnswerverifiedShow Answer

In the strict monetarist view, a large increase in the money supply will have:

Correct AnswerverifiedShow Answer

According to mainstream economic analysis, a balanced-budget rule for fiscal policy would be:

Correct AnswerverifiedShow Answer

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the:

Correct AnswerverifiedShow Answer

In the monetarist equation of exchange, MV is the monetarist counterpart of:

Correct AnswerverifiedShow Answer

Economist Abba Lerner compared the economy to a car needing:

Correct AnswerverifiedShow Answer

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Correct AnswerverifiedShow Answer

If nominal GDP is $848 billion and the velocity of money is 4, then the:

Correct AnswerverifiedShow Answer

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