Question 1

A Keynesian theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

Accepted Answer

A) True 
 B)False  True

Question 2

SInce 1950, the United States has experienced about 20 business cycles.

Accepted Answer

A) True 
 B)False  False

Question 3

According to the Laffer curve, if the economy is on the positively sloped section of the curve, then

Accepted Answer

A)  both an increase and a decrease in tax rates will increase tax revenue. 
B)  a decrease in the tax rate will increase tax revenue. 
C)  an increase in the tax rate will increase tax revenue. 
D)  both an increase and a decrease in tax rates will decrease tax revenues. 
A)  both an increase and a decrease in tax rates will increase tax revenue. 
B)  a decrease in the tax rate will increase tax revenue. 
C)  an increase in the tax rate will increase tax revenue. 
D)  both an increase and a decrease in tax rates will decrease tax revenues. C

Question 4

Who wrote the General Theory of Employment, Interest, and Money?

Accepted Answer

A)  Adam Smith 
B)  David Ricardo 
C)  Milton Friedman 
D)  John Maynard Keynes 
A)  Adam Smith 
B)  David Ricardo 
C)  Milton Friedman 
D)  John Maynard Keynes

Question 5

Which of the following is not one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

Accepted Answer

A)  The rational-expectations assumption is difficult to test. 
B)  Macroeconomic models differ in ways that are hard to standardize for. 
C)  Macroeconomic models cannot be expressed in mathematical terms. 
D)  The amount of data available is fairly small. 
A)  The rational-expectations assumption is difficult to test. 
B)  Macroeconomic models differ in ways that are hard to standardize for. 
C)  Macroeconomic models cannot be expressed in mathematical terms. 
D)  The amount of data available is fairly small.

Question 6

The Lucas supply model, in combination with the assumption that expectations are rational, leads to the conclusion that

Accepted Answer

A)  expansionary policies, but not contractionary policies, can have an impact on real output. 
B)  contractionary policies, but not expansionary policies, can have an impact on real output. 
C)  only unanticipated policy changes can have an impact on output. 
D)  neither anticipated nor unanticipated policy changes can have an impact on output. 
A)  expansionary policies, but not contractionary policies, can have an impact on real output. 
B)  contractionary policies, but not expansionary policies, can have an impact on real output. 
C)  only unanticipated policy changes can have an impact on output. 
D)  neither anticipated nor unanticipated policy changes can have an impact on output.

Question 7

Monetarists argue that ________ should grow at a rate equal to the average growth of real output.

Accepted Answer

A)  the money supply 
B)  per-capita nominal GDP 
C)  the velocity of money 
D)  the personal income tax rate 
A)  the money supply 
B)  per-capita nominal GDP 
C)  the velocity of money 
D)  the personal income tax rate

Question 8

Which of the following represents the Lucas supply function?

Accepted Answer

A)  Y = f(Pe - P) 
B)  Y = f(Pe + P) 
C)  Y = f(P + Pe) 
D)  Y = f(P - Pe) 
A)  Y = f(Pe - P) 
B)  Y = f(Pe + P) 
C)  Y = f(P + Pe) 
D)  Y = f(P - Pe)

Question 9

In a sense, Keynesian economics is the foundation of all macroeconomics.

Accepted Answer

A) True 
 B)False

Question 10

According to the quantity theory of money, nominal GDP will ________ if the money supply ________.

Accepted Answer

A)  fall by 50%; rises by 50% 
B)  rise by 50%; falls by 50% 
C)  double; doubles 
D)  rise by 100%; falls by 50% 
A)  fall by 50%; rises by 50% 
B)  rise by 50%; falls by 50% 
C)  double; doubles 
D)  rise by 100%; falls by 50%

Question 11

The argument in favor of rational expectations is that

Accepted Answer

A)  people will continue to acquire information as long as the marginal benefit of that information is positive. 
B)  individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C)  it is costless for individuals and firms to form rational expectations. 
D)  if expectations were not rational, there would be unexploited profit opportunities available. 
A)  people will continue to acquire information as long as the marginal benefit of that information is positive. 
B)  individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C)  it is costless for individuals and firms to form rational expectations. 
D)  if expectations were not rational, there would be unexploited profit opportunities available.

Question 12

Suppose that the stock of money is $150 billion and nominal GDP is $750 billion. The velocity of money is

Accepted Answer

A)  4. 
B)  5. 
C)  16.7. 
D)  600. 
A)  4. 
B)  5. 
C)  16.7. 
D)  600.

Question 13

If firms have rational expectations and if they set prices and wages on this basis, then prices and wages

Accepted Answer

A)  will always be at market-clearing levels. 
B)  will, on average, be set at market-clearing levels. 
C)  will always be above market-clearing levels. 
D)  will never be set at market-clearing levels. 
A)  will always be at market-clearing levels. 
B)  will, on average, be set at market-clearing levels. 
C)  will always be above market-clearing levels. 
D)  will never be set at market-clearing levels.

Question 14

Which of the following is true?

Accepted Answer

A)  Measuring money supply using M2 reduces fluctuations in velocity. 
B)  Measuring money supply using M1 reduces fluctuations in velocity. 
C)  Measuring money supply using M2 increases fluctuations in velocity. 
D)  Velocity does not depend on which money supply measurement we use. 
A)  Measuring money supply using M2 reduces fluctuations in velocity. 
B)  Measuring money supply using M1 reduces fluctuations in velocity. 
C)  Measuring money supply using M2 increases fluctuations in velocity. 
D)  Velocity does not depend on which money supply measurement we use.

Question 15

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. 
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.

Question 16

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

Accepted Answer

A)  any announced policy change 
B)  any unanticipated policy change 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes 
A)  any announced policy change 
B)  any unanticipated policy change 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes

Question 17

If tax rates increased, giving people a decreased incentive to work and businesses a decreased incentive to invest

Accepted Answer

A)  aggregate supply will decrease, aggregate output will decrease, and the price level will decrease. 
B)  aggregate supply will decrease, aggregate output will decrease, and the price level will increase. 
C)  both aggregate supply and demand will decrease, aggregate output will decrease, and the price level will decrease. 
D)  aggregate supply will decrease, aggregate demand will increase, aggregate output will decrease, and the price level will increase. 
A)  aggregate supply will decrease, aggregate output will decrease, and the price level will decrease. 
B)  aggregate supply will decrease, aggregate output will decrease, and the price level will increase. 
C)  both aggregate supply and demand will decrease, aggregate output will decrease, and the price level will decrease. 
D)  aggregate supply will decrease, aggregate demand will increase, aggregate output will decrease, and the price level will increase.

Question 18

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

Accepted Answer

A)  increasing; increasing 
B)  decreasing; increasing 
C)  increasing; decreasing 
D)  none of the above 
A)  increasing; increasing 
B)  decreasing; increasing 
C)  increasing; decreasing 
D)  none of the above

Question 19

Refer to the information provided in Figure 32.1 below to answer the question(s) that follow.   Figure 32.1
-Refer to Figure 32.1. If the economy is at a point such as C on the Laffer curve, a(n) ________ in tax rates will ________ tax revenue.

Accepted Answer

A)  increase; increase 
B)  decrease; decrease 
C)  decrease; increase 
D)  change; not change 
A)  increase; increase 
B)  decrease; decrease 
C)  decrease; increase 
D)  change; not change

Question 20

Refer to the information provided in Figure 32.1 below to answer the question(s) that follow.   Figure 32.1
-Refer to Figure 32.1. At point B

Accepted Answer

A)  an increase in tax rates will increase tax revenue. 
B)  a decrease in tax rates will increase tax revenue. 
C)  any change in tax rates will decrease tax revenue. 
D)  any change in tax revenue will increase tax revenue. 
A)  an increase in tax rates will increase tax revenue. 
B)  a decrease in tax rates will increase tax revenue. 
C)  any change in tax rates will decrease tax revenue. 
D)  any change in tax revenue will increase tax revenue.

Exam 32: Alternative Views in Macroeconomics

A Keynesian theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

SInce 1950, the United States has experienced about 20 business cycles.

According to the Laffer curve, if the economy is on the positively sloped section of the curve, then

Who wrote the General Theory of Employment, Interest, and Money?

Which of the following is not one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

The Lucas supply model, in combination with the assumption that expectations are rational, leads to the conclusion that

Monetarists argue that ________ should grow at a rate equal to the average growth of real output.

Which of the following represents the Lucas supply function?

In a sense, Keynesian economics is the foundation of all macroeconomics.

According to the quantity theory of money, nominal GDP will ________ if the money supply ________.

The argument in favor of rational expectations is that

Suppose that the stock of money is $150 billion and nominal GDP is $750 billion. The velocity of money is

If firms have rational expectations and if they set prices and wages on this basis, then prices and wages

Which of the following is true?

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

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

If tax rates increased, giving people a decreased incentive to work and businesses a decreased incentive to invest

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

Refer to the information provided in Figure 32.1 below to answer the question(s) that follow. Figure 32.1 -Refer to Figure 32.1. If the economy is at a point such as C on the Laffer curve, a(n) ________ in tax rates will ________ tax revenue.

Refer to the information provided in Figure 32.1 below to answer the question(s) that follow. Figure 32.1 -Refer to Figure 32.1. At point B

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

According to the quantity theory of money, nominal GDP will if the money supply .

A monetarist would advocate money supply during recessions and money supply during periods of high inflation.

Refer to the information provided in Figure 32.1 below to answer the question(s) that follow. Figure 32.1 -Refer to Figure 32.1. If the economy is at a point such as C on the Laffer curve, a(n) in tax rates will tax revenue.