Question 1

Refer to the information provided in Figure 18.1 below to answer the questions that follow.
 1,but does not change the price level. C) increases the price level above P1,but does not change equilibrium output. D) increases equilibrium output above Y1 and decreases the price level below P1." class="answers-bank-image d-inline" rel="preload" > Figure 18.1
-Refer to Figure 18.1.According to monetarists,an expansionary fiscal policy in the long run and after all the adjustments have been made

Accepted Answer

A)  does not increase equilibrium output or the price level.
B)  increases equilibrium output above Y1,but does not change the price level.
C)  increases the price level above P1,but does not change equilibrium output.
D)  increases equilibrium output above Y1 and decreases the price level below P1.E) A) and C)
F) A) and B) C

Question 2

According to the Lucas supply function,in combination with the assumption that expectations are rational,change in government policy can affect real output only if

Accepted Answer

A)  the policy change is correctly anticipated by the public.
B)  the policy change is a surprise.
C)  the policy change is a mix of both fiscal and monetary policy changes.
D)  expansionary policy changes are made.E) None of the above
F) A) and B)

Question 3

Monetarists and Keynesians

Accepted Answer

A)  disagree on the speed at which wages change.
B)  agree on the impact of fiscal policy on the economy.
C)  disagree on how the Fed changes money supply.
D)  agree on the usefulness of discretionary policy.E) A) and B)
F) B) and C)

Question 4

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the

Accepted Answer

A)  aggregate supply curve.
B)  Lucas supply curve.
C)  aggregate production function.
D)  Laffer curve.E) A) and D)
F) All of the above

Question 5

Refer to the information provided in Figure 18.3 below to answer the questions that follow.
  Figure 18.3
-Refer to Figure 18.3.A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

Accepted Answer

A)  A
B)  B
C)  C
D)  both A and BE) A) and B)
F) B) and C)

Question 6

Refer to the information provided in Figure 18.1 below to answer the questions that follow.
 1 to the right. B) shift AD1 to the right. C) shift AD1 to the left. D) not change AD and AS." class="answers-bank-image d-inline" rel="preload" > Figure 18.1
-Refer to Figure 18.1.According to the new classical economists,under rational expectations an expected decrease in government spending would

Accepted Answer

A)  shift AS1 to the right.
B)  shift AD1 to the right.
C)  shift AD1 to the left.
D)  not change AD and AS.E) A) and D)
F) A) and C)

Question 7

Monetarists argue that the money supply should

Accepted Answer

A)  grow at a rate equal to the average growth of real output.
B)  grow at a rate slower than the average growth of real output.
C)  grow at a rate greater than the average growth of real output.
D)  be held constant over the business cycle.E) B) and C)
F) All of the above A

Question 8

With the Lucas supply function,a price surprise means

Accepted Answer

A)  actual price is greater than expected price.
B)  actual price is less than expected price.
C)  actual price equals expected price.
D)  actual price is either greater than or lower than expected price.E) None of the above
F) B) and C)

Question 9

It is difficult to test whether the velocity of money is constant over time because

Accepted Answer

A)  there has been very little variation in the money supply over time.
B)  there may be a time lag between a change in the money supply and its effects on nominal GDP.
C)  there is only one definition of the money supply.
D)  it is difficult to measure the value of nominal GDP over time.E) B) and C)
F) B) and D)

Question 10

Refer to the information provided in Figure 18.3 below to answer the questions that follow.
  Figure 18.3
-Refer to Figure 18.3.A cut in tax rates will decrease tax revenue if the economy moves from Point

Accepted Answer

A)  A to B.
B)  B to A.
C)  C to B.
D)  A to D.E) All of the above
F) B) and C)

Question 11

The Lucas supply function,in combination with the assumption that expectations are rational,implies that an announced monetary policy change will

Accepted Answer

A)  not change output.
B)  decrease output,but never increase output.
C)  either increase or decrease output,depending on the type of monetary policy change.
D)  increase output,but never decrease output.E) A) and C)
F) B) and C)

Question 12

According to supply-side economics,the government needs to focus on policies to

Accepted Answer

A)  stimulate demand.
B)  decrease demand.
C)  stimulate supply.
D)  decrease supply.E) None of the above
F) A) and B)

Question 13

According to monetarists

Accepted Answer

A)  the economy is relatively stable.
B)  economic policy is effective in increasing output.
C)  the economy is very unstable.
D)  government spending is the main source of inflation.E) B) and C)
F) All of the above A

Question 14

Most empirical data support the idea that money demand depends on the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

Keynesians believe the economy can be managed using monetary and fiscal policy.

Accepted Answer

A) True 
 B)False

Question 16

According to the Lucas supply function,workers who experience a positive price surprise will work fewer hours when

Accepted Answer

A)  there is no substitution effect from a positive price surprise.
B)  there is no income effect from a positive price surprise.
C)  the substitution effect dominates the income effect.
D)  the income effect dominates the substitution effect.E) A) and C)
F) C) and D)

Question 17

According to supply-side economists,as tax rates are reduced,labor supply should increase.This implies that

Accepted Answer

A)  the income effect of a wage change is greater than the substitution effect of a wage change.
B)  the substitution effect of a wage change is greater than the income effect of a wage change.
C)  there is no income effect when tax rates are changed.
D)  there is no substitution effect when tax rates are changed.E) A) and C)
F) All of the above

Question 18

If nominal GDP is $200 billion and the stock of money is $40 billion,the velocity is 5.

Accepted Answer

A) True 
 B)False

Question 19

According to the Lucas supply function,if people's expectations are on target,then the amount of output they produce

Accepted Answer

A)  is not related to the price level.
B)  is directly related to the price level.
C)  will always be below potential GDP.
D)  will always be above potential GDP.E) All of the above
F) None of the above

Question 20

It is difficult to empirically test alternative macroeconomic models against one another because

Accepted Answer

A)  macroeconomic models do not predict the same outcomes from policies.
B)  macroeconomic models differ in ways that are hard to standardize for.
C)  macroeconomic models cannot be expressed in mathematical terms.
D)  macroeconomic models are always expressed in scientific terms.E) A) and C)
F) B) and C)

Exam 18: Alternative Views in Macroeconomics

Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1 -Refer to Figure 18.1.According to monetarists,an expansionary fiscal policy in the long run and after all the adjustments have been made

Correct AnswerverifiedC

According to the Lucas supply function,in combination with the assumption that expectations are rational,change in government policy can affect real output only if

Correct AnswerverifiedShow Answer

Monetarists and Keynesians

Correct AnswerverifiedShow Answer

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1 -Refer to Figure 18.1.According to the new classical economists,under rational expectations an expected decrease in government spending would

Correct AnswerverifiedShow Answer

Monetarists argue that the money supply should

Correct AnswerverifiedA

With the Lucas supply function,a price surprise means

Correct AnswerverifiedShow Answer

It is difficult to test whether the velocity of money is constant over time because

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.A cut in tax rates will decrease tax revenue if the economy moves from Point

Correct AnswerverifiedShow Answer

The Lucas supply function,in combination with the assumption that expectations are rational,implies that an announced monetary policy change will

Correct AnswerverifiedShow Answer

According to supply-side economics,the government needs to focus on policies to

Correct AnswerverifiedShow Answer

According to monetarists

Correct AnswerverifiedA

Most empirical data support the idea that money demand depends on the interest rate.

Correct AnswerverifiedShow Answer

Keynesians believe the economy can be managed using monetary and fiscal policy.

Correct AnswerverifiedShow Answer

According to the Lucas supply function,workers who experience a positive price surprise will work fewer hours when

Correct AnswerverifiedShow Answer

According to supply-side economists,as tax rates are reduced,labor supply should increase.This implies that

Correct AnswerverifiedShow Answer

If nominal GDP is $200 billion and the stock of money is $40 billion,the velocity is 5.

Correct AnswerverifiedShow Answer

According to the Lucas supply function,if people's expectations are on target,then the amount of output they produce

Correct AnswerverifiedShow Answer

It is difficult to empirically test alternative macroeconomic models against one another because

Correct AnswerverifiedShow Answer

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C

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A

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A

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