Question 1

According to the Laffer curve, a decrease in the tax rate will decrease tax revenue

Accepted Answer

A)  if the economy is on the positively sloped section of the curve. 
B)  if the economy is on the negatively sloped section of the curve. 
C)  if the economy is at the 100% tax rate point on the curve. 
D)  no matter the location of the economy on the curve. 
A)  if the economy is on the positively sloped section of the curve. 
B)  if the economy is on the negatively sloped section of the curve. 
C)  if the economy is at the 100% tax rate point on the curve. 
D)  no matter the location of the economy on the curve.

Question 2

If real output is $25 billion, the price level is 5, and velocity is 5, what is the stock of money?

Accepted Answer

A)  $1 billion 
B)  $10 billion 
C)  $25 billion 
D)  $625 billion 
A)  $1 billion 
B)  $10 billion 
C)  $25 billion 
D)  $625 billion

Question 3

Monetarists and Keynesians ________ on the impact of fiscal policy on the economy.

Accepted Answer

A)  disagree 
B)  agree 
C)  have no opinion 
D)  at times agree and at other times disagree 
A)  disagree 
B)  agree 
C)  have no opinion 
D)  at times agree and at other times disagree

Question 4

The primary argument against the rational-expectations assumption is that

Accepted Answer

A)  the costs of formulating rational expectations are very low. 
B)  it requires households and firms to know too much. 
C)  it assumes that unexploited opportunities for profit persist in the economy. 
D)  people expect certain outcomes from the government's policy actions. 
A)  the costs of formulating rational expectations are very low. 
B)  it requires households and firms to know too much. 
C)  it assumes that unexploited opportunities for profit persist in the economy. 
D)  people expect certain outcomes from the government's policy actions.

Question 5

According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.

Accepted Answer

A)  more; higher 
B)  the same; lower 
C)  the same; higher 
D)  less; higher 
A)  more; higher 
B)  the same; lower 
C)  the same; higher 
D)  less; higher

Question 6

According to the real business cycle theory, ________ are responsible for economic growth.

Accepted Answer

A)  expansionary fiscal and monetary policies 
B)  positive shifts in the AD curve 
C)  trade and income policies 
D)  positive shifts in the AS curve 
A)  expansionary fiscal and monetary policies 
B)  positive shifts in the AD curve 
C)  trade and income policies 
D)  positive shifts in the AS curve

Question 7

It is ________ to empirically test alternative macroeconomic models against one another ________ macroeconomic models differ in ways that are hard to standardize.

Accepted Answer

A)  pointless; because 
B)  difficult; because 
C)  relatively easy; even though 
D)  impossible; because 
A)  pointless; because 
B)  difficult; because 
C)  relatively easy; even though 
D)  impossible; because

Question 8

If the stock of money is $150 billion, velocity is 4, and the price level is 3, what is real output?

Accepted Answer

A)  $37.5 billion 
B)  $112.5 billion 
C)  $200 billion 
D)  $1,800 billion 
A)  $37.5 billion 
B)  $112.5 billion 
C)  $200 billion 
D)  $1,800 billion

Question 9

Velocity is ________ if the demand for money depends on the interest rate.

Accepted Answer

A)  constant 
B)  zero 
C)  infinite 
D)  not constant 
A)  constant 
B)  zero 
C)  infinite 
D)  not constant

Question 10

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

Accepted Answer

A)  are always correct. 
B)  consistently overestimate the actual rate of inflation in the future. 
C)  are correct on average, but are subject to errors that are distributed randomly. 
D)  consistently underestimate the actual rate of inflation in the future. 
A)  are always correct. 
B)  consistently overestimate the actual rate of inflation in the future. 
C)  are correct on average, but are subject to errors that are distributed randomly. 
D)  consistently underestimate the actual rate of inflation in the future.

Question 11

The velocity of money ________ be affected by how frequently workers are paid, and ________ be affected by the development of new financial instruments, such as interest-bearing checking accounts.

Accepted Answer

A)  can; can 
B)  can; cannot 
C)  cannot; can 
D)  cannot; cannot 
A)  can; can 
B)  can; cannot 
C)  cannot; can 
D)  cannot; cannot

Question 12

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

Accepted Answer

A)  negative technology shocks 
B)  positive technology shocks 
C)  increases in the money supply 
D)  decreases in the money supply 
A)  negative technology shocks 
B)  positive technology shocks 
C)  increases in the money supply 
D)  decreases in the money supply

Question 13

According to the rational-expectation theory, an unanticipated increase in money supply increases both output and prices.

Accepted Answer

A) True 
 B)False

Question 14

Expectations are hard to test even though economists know the model the public uses when forming expectations.

Accepted Answer

A) True 
 B)False

Question 15

The new classical macroeconomists believe that people should form expectations by

Accepted Answer

A)  actually seeking to forecast the future. 
B)  assuming that the future will be like the past. 
C)  assuming that the future will be like the present. 
D)  overlooking information that allows them to make more accurate forecasts. 
A)  actually seeking to forecast the future. 
B)  assuming that the future will be like the past. 
C)  assuming that the future will be like the present. 
D)  overlooking information that allows them to make more accurate forecasts.

Question 16

________ believe that real output is determined by aggregate supply.

Accepted Answer

A)  Keynesians 
B)  Socialists 
C)  Communists 
D)  Monetarists 
A)  Keynesians 
B)  Socialists 
C)  Communists 
D)  Monetarists

Question 17

The Keynesian hypothesis assumes that people know the "true model" of the economy and form their expectations of the future based on this model.

Accepted Answer

A) True 
 B)False

Question 18

When expectations are rational, prices and wages are, on average, set at market-clearing levels.

Accepted Answer

A) True 
 B)False

Question 19

The real business cycle theory places little emphasis on shocks to technology.

Accepted Answer

A) True 
 B)False

Question 20

Keynesian economics includes the idea that

Accepted Answer

A)  economic policies are ineffective. 
B)  the economy is basically stable. 
C)  prices adjust to clear the markets. 
D)  labor markets don't always clear due to wage rigidities. 
A)  economic policies are ineffective. 
B)  the economy is basically stable. 
C)  prices adjust to clear the markets. 
D)  labor markets don't always clear due to wage rigidities.

Exam 32: Alternative Views in Macroeconomics

According to the Laffer curve, a decrease in the tax rate will decrease tax revenue

If real output is $25 billion, the price level is 5, and velocity is 5, what is the stock of money?

Monetarists and Keynesians ________ on the impact of fiscal policy on the economy.

The primary argument against the rational-expectations assumption is that

According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.

According to the real business cycle theory, ________ are responsible for economic growth.

It is ________ to empirically test alternative macroeconomic models against one another ________ macroeconomic models differ in ways that are hard to standardize.

If the stock of money is $150 billion, velocity is 4, and the price level is 3, what is real output?

Velocity is ________ if the demand for money depends on the interest rate.

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

The velocity of money ________ be affected by how frequently workers are paid, and ________ be affected by the development of new financial instruments, such as interest-bearing checking accounts.

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

According to the rational-expectation theory, an unanticipated increase in money supply increases both output and prices.

Expectations are hard to test even though economists know the model the public uses when forming expectations.

The new classical macroeconomists believe that people should form expectations by

________ believe that real output is determined by aggregate supply.

The Keynesian hypothesis assumes that people know the "true model" of the economy and form their expectations of the future based on this model.

When expectations are rational, prices and wages are, on average, set at market-clearing levels.

The real business cycle theory places little emphasis on shocks to technology.

Keynesian economics includes the idea that

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 Lucas supply function, the economy will produce output when prices are unexpectedly than when prices are at their expected level.

It is to empirically test alternative macroeconomic models against one another macroeconomic models differ in ways that are hard to standardize.

The velocity of money be affected by how frequently workers are paid, and be affected by the development of new financial instruments, such as interest-bearing checking accounts.