Question 1

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

Accepted Answer

A)  the actual price level, but not the expected price level. 
B)  neither the actual price level nor the expected price level. 
C)  the expected price level, but not the actual price level. 
D)  both the actual price level and the expected price level. 
A)  the actual price level, but not the expected price level. 
B)  neither the actual price level nor the expected price level. 
C)  the expected price level, but not the actual price level. 
D)  both the actual price level and the expected price level.

Question 2

According to the Laffer curve, as tax rates increase, tax revenues

Accepted Answer

A)  initially increase and then decrease. 
B)  decrease continuously. 
C)  initially decrease and then increase. 
D)  rise continuously. 
A)  initially increase and then decrease. 
B)  decrease continuously. 
C)  initially decrease and then increase. 
D)  rise continuously.

Question 3

If income is $20 billion, the price level is 5, and the stock of money is $10 billion, what is the income velocity of money?

Accepted Answer

A)  0.4 
B)  2.5 
C)  4 
D)  10 
A)  0.4 
B)  2.5 
C)  4 
D)  10

Question 4

According to the Laffer curve

Accepted Answer

A)  an increase in tax rates will always increase tax revenues. 
B)  a decrease in tax rates will always decrease tax revenues. 
C)  a decrease in tax rates will always increases tax revenues. 
D)  an increase in tax rates will have an inconsistent effect on tax revenues. 
A)  an increase in tax rates will always increase tax revenues. 
B)  a decrease in tax rates will always decrease tax revenues. 
C)  a decrease in tax rates will always increases tax revenues. 
D)  an increase in tax rates will have an inconsistent effect on tax revenues.

Question 5

Refer to the information provided in Figure 32.3 below to answer the question(s) that follow.   Figure 32.3
-Refer to Figure 32.3. Suppose the economy is at Point A. According to the new classical theory, an anticipated increase in aggregate demand

Accepted Answer

A)  leaves the economy at Point A. 
B)  moves the economy to Point B. 
C)  moves the economy to Point C. 
D)  moves the economy to Point D. 
A)  leaves the economy at Point A. 
B)  moves the economy to Point B. 
C)  moves the economy to Point C. 
D)  moves the economy to Point D.

Question 6

If real output is $50 billion, the price level is 10, and velocity is 5, what is the stock of money?

Accepted Answer

A)  $1 billion 
B)  $25 billion 
C)  $100 billion 
D)  $2,500 billion 
A)  $1 billion 
B)  $25 billion 
C)  $100 billion 
D)  $2,500 billion

Question 7

The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.

Accepted Answer

A)  in combination with; unanticipated 
B)  in combination with; announced 
C)  in contrast to; unanticipated 
D)  in contrast to; announced 
A)  in combination with; unanticipated 
B)  in combination with; announced 
C)  in contrast to; unanticipated 
D)  in contrast to; announced

Question 8

Lowering taxes is a contractionary Keynesian policy.

Accepted Answer

A) True 
 B)False

Question 9

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours.

Accepted Answer

A)  positive; correctly; risen 
B)  negative; correctly; fallen 
C)  negative; incorrectly; risen 
D)  positive; incorrectly; risen 
A)  positive; correctly; risen 
B)  negative; correctly; fallen 
C)  negative; incorrectly; risen 
D)  positive; incorrectly; risen

Question 10

When expectations are rational, disequilibrium in the labor market would exist only temporarily as a result of unpredictable shocks in the economy.

Accepted Answer

A) True 
 B)False

Question 11

According to new classical economists, if the Fed increases the money supply after it announces it, output ________ and the price level ________.

Accepted Answer

A)  increases; remains constant 
B)  remains constant; increases 
C)  remains constant; remains constant 
D)  increases; increase 
A)  increases; remains constant 
B)  remains constant; increases 
C)  remains constant; remains constant 
D)  increases; increase

Question 12

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 moves from Point B to Point C, a ________ in tax rates will ________ tax revenue.

Accepted Answer

A)  cut; decrease 
B)  rise; decrease 
C)  cut; increase 
D)  rise; increase 
A)  cut; decrease 
B)  rise; decrease 
C)  cut; increase 
D)  rise; increase

Question 13

According to the ________ hypothesis, unemployment may occur, and if it does, it will be temporary.

Accepted Answer

A)  Keynesian labor 
B)  Socialist workers' 
C)  rational expectations 
D)  equilibrium employment 
A)  Keynesian labor 
B)  Socialist workers' 
C)  rational expectations 
D)  equilibrium employment

Question 14

Despite the cut in taxes during the 1980s, federal receipts rose all but one year during that decade.

Accepted Answer

A) True 
 B)False

Question 15

According to the Laffer curve, a decrease in the tax rate will increase 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 farthest point out 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 farthest point out on the curve. 
D)  no matter the location of the economy on the curve.

Question 16

The microeconomic view of the expectations of inflation are based on the assumption that

Accepted Answer

A)  individuals are rational, forward-looking people. 
B)  individuals will merely guess at what the inflation rate will be. 
C)  people always assume that inflation will be zero. 
D)  individuals are highly sophisticated in their economic thinking. 
A)  individuals are rational, forward-looking people. 
B)  individuals will merely guess at what the inflation rate will be. 
C)  people always assume that inflation will be zero. 
D)  individuals are highly sophisticated in their economic thinking.

Question 17

The equation for the quantity theory of money can be written as (M × Y = P × V).

Accepted Answer

A) True 
 B)False

Question 18

If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest

Accepted Answer

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

Question 19

If the stock of money is $50 billion, velocity is 4, and real output is $25 billion, what is the price level?

Accepted Answer

A)  0.5 
B)  2 
C)  4 
D)  8 
A)  0.5 
B)  2 
C)  4 
D)  8

Question 20

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place, the economy began to expand. These critics, though, argue that the expansion did not result from the supply-side policies, but rather from

Accepted Answer

A)  the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B)  the self-correcting nature of the economy. 
C)  the increases in government spending that occurred at the same time the tax cuts became effective. 
D)  a very large increase in the demand for U.S. exports at the same time that U.S. imports fell dramatically. 
A)  the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B)  the self-correcting nature of the economy. 
C)  the increases in government spending that occurred at the same time the tax cuts became effective. 
D)  a very large increase in the demand for U.S. exports at the same time that U.S. imports fell dramatically.

Exam 32: Alternative Views in Macroeconomics

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

According to the Laffer curve, as tax rates increase, tax revenues

If income is $20 billion, the price level is 5, and the stock of money is $10 billion, what is the income velocity of money?

According to the Laffer curve

Refer to the information provided in Figure 32.3 below to answer the question(s) that follow. Figure 32.3 -Refer to Figure 32.3. Suppose the economy is at Point A. According to the new classical theory, an anticipated increase in aggregate demand

If real output is $50 billion, the price level is 10, and velocity is 5, what is the stock of money?

The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.

Lowering taxes is a contractionary Keynesian policy.

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours.

When expectations are rational, disequilibrium in the labor market would exist only temporarily as a result of unpredictable shocks in the economy.

According to new classical economists, if the Fed increases the money supply after it announces it, output ________ and the price level ________.

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 moves from Point B to Point C, a ________ in tax rates will ________ tax revenue.

According to the ________ hypothesis, unemployment may occur, and if it does, it will be temporary.

Despite the cut in taxes during the 1980s, federal receipts rose all but one year during that decade.

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

The microeconomic view of the expectations of inflation are based on the assumption that

The equation for the quantity theory of money can be written as (M × Y = P × V).

If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest

If the stock of money is $50 billion, velocity is 4, and real output is $25 billion, what is the price level?

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place, the economy began to expand. These critics, though, argue that the expansion did not result from the supply-side policies, but rather from

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

The Lucas supply function, the assumption that expectations are rational, implies that policy changes will have no effect on real output.

Assume that the income effect dominates the substitution effect. When workers experience a price surprise, they perceive that their real wage rate has , which leads them to work fewer hours.

According to new classical economists, if the Fed increases the money supply after it announces it, output and the price level .

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 moves from Point B to Point C, a in tax rates will tax revenue.