Question 1

According to rational expectations theory, observed instability in the private economy would most likely be due to

Accepted Answer

A)  changes in aggregate supply.
B)  inappropriate monetary policy.
C)  the instability of investment spending in the economy.
D)  unanticipated aggregate demand and aggregate supply shocks in the short run.E) C) and D)
F) All of the above

Question 2

Real-business-cycle theory focuses on factors affecting

Accepted Answer

A)  aggregate demand.
B)  aggregate supply.
C)  the velocity of money.
D)  consumer spending.E) None of the above
F) A) and B)

Question 3

Mainstream economists have adopted some ideas from RET, and some rational expectations assumptions are being incorporated into current macroeconomic models.

Accepted Answer

A) True 
 B)False

Question 4

"Targeting the forecast" is the policy that best describes which of the following views?

Accepted Answer

A)  real-business-cycle theory
B)  rational expectations theory
C)  market monetarism
D)  the Keynesian viewE) A) and C)
F) B) and D)

Question 5

Dividing nominal gross domestic product (GDP)  by the money supply (M)  is a way to obtain the

Accepted Answer

A)  velocity of money.
B)  monetary multiplier.
C)  equation of exchange.
D)  monetary rule.E) A) and C)
F) A) and D)

Question 6

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

Accepted Answer

A)  increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged.
B)  increase in aggregate demand by an equal amount, so real output and the price level would increase.
C)  decrease in aggregate demand, so real output would increase and the price level would decrease.
D)  decrease in aggregate demand, so real output and the price level would increase.E) None of the above
F) All of the above

Question 7

Given the equation of exchange, if V is stable, an increase in M will necessarily increase

Accepted Answer

A)  the demand for money.
B)  the price level.
C)  nominal GDP.
D)  real GDP.E) B) and C)
F) All of the above

Question 8

In the rational expectations view, the best approach to fiscal policy is for the government to

Accepted Answer

A)  cut taxes.
B)  balance its budget.
C)  eliminate transfer payments.
D)  fix government spending.E) All of the above
F) A) and B)

Question 9

The theory of rational expectations calls for monetary policy rules because

Accepted Answer

A)  of past policy errors.
B)  policy tends to be countercyclical.
C)  of the inability to time policy decisions.
D)  of the reaction of the public to the expected effects of policy.E) B) and C)
F) A) and B)

Question 10

In a full-employment economy, a rise in M will cause inflation unless

Accepted Answer

A)  V rises in proportion to the increase in M.
B)  the quantity of goods produced declines proportionately.
C)  tax reductions accompany the increase in the money supply.
D)  the velocity of money diminishes.E) B) and D)
F) C) and D)

Question 11

Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability?

Accepted Answer

A)  monetarism
B)  mainstream economics
C)  real-business-cycle theory
D)  rational expectations theoryE) B) and C)
F) A) and B)

Question 12

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Accepted Answer

A)  unanticipated price level change.
B)  fully anticipated price level change.
C)  mutually beneficial equilibrium.
D)  insider-outsider relationship.E) A) and C)
F) A) and B)

Question 13

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would

Accepted Answer

A)  increase real interest rates and drive out investment spending.
B)  eliminate monetary policy as a stabilization tool.
C)  force government to undertake expansionary fiscal policy during inflation and contractionary fiscal policy during recession.
D)  expand the size of the federal government.E) None of the above
F) B) and C)

Question 14

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

Question 15

The equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Which of the following is a component of the equation of exchange?

Accepted Answer

A)  consumption
B)  the interest rate
C)  investment
D)  the velocity of moneyE) B) and C)
F) A) and D)

Question 18

Rational expectations theory considers the aggregate

Accepted Answer

A)  demand curve to be vertical.
B)  supply curve to be vertical.
C)  supply curve to be horizontal.
D)  demand curve to be horizontal.E) A) and B)
F) A) and C)

Question 19

Refer to the table.At the $8 wage, labor cost per unit of output is

Accepted Answer

A)  $1.25.
B)  $1.50.
C)  $2.00.
D)  $1.67.Type: TableE) All of the above
F) None of the above

Question 20

Monetarists say the velocity of money is highly variable and there is no close link between the money supply and the level of economic activity.

Accepted Answer

A) True 
 B)False

Exam 39: Current Issues in Macro Theory and Policy

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Correct AnswerverifiedShow Answer

"Targeting the forecast" is the policy that best describes which of the following views?

Correct AnswerverifiedShow Answer

According to new classical economists, the

Correct AnswerverifiedShow Answer

In the rational expectations view, the best approach to fiscal policy is for the government to

Correct AnswerverifiedShow Answer

Monetarists say

Correct AnswerverifiedShow Answer

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

Correct AnswerverifiedShow Answer

Refer to the table.At the $8 wage, labor cost per unit of output is

Correct AnswerverifiedShow Answer

Given the equation of exchange, if V is stable, an increase in M will necessarily increase

Correct AnswerverifiedShow Answer

Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain the

Correct AnswerverifiedShow Answer

Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability?

Correct AnswerverifiedShow Answer

Which of the following is a component of the equation of exchange?

Correct AnswerverifiedShow Answer

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would

Correct AnswerverifiedShow Answer

The theory of rational expectations calls for monetary policy rules because

Correct AnswerverifiedShow Answer

Mainstream economists have adopted some ideas from RET, and some rational expectations assumptions are being incorporated into current macroeconomic models.

Correct AnswerverifiedShow Answer

Rational expectations theory considers the aggregate

Correct AnswerverifiedShow Answer

In a full-employment economy, a rise in M will cause inflation unless

Correct AnswerverifiedShow Answer

The equation of exchange is MV = PQ.

Correct AnswerverifiedShow Answer

Real-business-cycle theory focuses on factors affecting

Correct AnswerverifiedShow Answer

Monetarists say the velocity of money is highly variable and there is no close link between the money supply and the level of economic activity.

Correct AnswerverifiedShow Answer

According to rational expectations theory, observed instability in the private economy would most likely be due to

Correct AnswerverifiedShow Answer

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