Question 1

According to the new classical theory, economic policies are effective

Accepted Answer

A)  only if they are unanticipated. 
B)  only if they are anticipated. 
C)  only if they are formed with rational expectations. 
D)  only if they are expansionary in nature. 
A)  only if they are unanticipated. 
B)  only if they are anticipated. 
C)  only if they are formed with rational expectations. 
D)  only if they are expansionary in nature.

Question 2

If nominal GDP is $1.2 trillion, velocity is $1.2 trillion multiplied by the stock of money.

Accepted Answer

A) True 
 B)False

Question 3

A velocity of ________ means money changes hands, on average, every 4 months.

Accepted Answer

A)  0.25 
B)  1.25 
C)  3 
D)  4 
A)  0.25 
B)  1.25 
C)  3 
D)  4

Question 4

Supporters of supply-side economics claim that Reagan's tax policies were quite successful in stimulating the economy because

Accepted Answer

A)  almost immediately after the tax cuts, the economy expanded and the recession of 1980-1982 came to an end. 
B)  inflation rates fell sharply from the high rates of 1980 and 1981. 
C)  throughout most of the 1980s, federal receipts continued to rise even though tax rates had been cut. 
D)  all of the above. 
A)  almost immediately after the tax cuts, the economy expanded and the recession of 1980-1982 came to an end. 
B)  inflation rates fell sharply from the high rates of 1980 and 1981. 
C)  throughout most of the 1980s, federal receipts continued to rise even though tax rates had been cut. 
D)  all of the above.

Question 5

Because people may change how they react when economic policies are changed, comparing macroeconomic models is

Accepted Answer

A)  difficult. 
B)  impossible. 
C)  not attempted by legitimate economists. 
D)  only effective for long-run analysis. 
A)  difficult. 
B)  impossible. 
C)  not attempted by legitimate economists. 
D)  only effective for long-run analysis.

Question 6

According to supply-side economists, as tax rates are increased, labor supply should decrease. This implies that the substitution effect of a wage change ________ the income effect of a wage change.

Accepted Answer

A)  is less than 
B)  is greater than 
C)  is equal to 
D)  has no impact on 
A)  is less than 
B)  is greater than 
C)  is equal to 
D)  has no impact on

Question 7

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. 
A)  stimulate demand. 
B)  decrease demand. 
C)  stimulate supply. 
D)  decrease supply.

Question 8

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow.   Figure 32.2
-Refer to Figure 32.2. According to the ________ economists, under rational expectations an expected decrease in taxes would not change AD or AS.

Accepted Answer

A)  Keynesian 
B)  the new classical 
C)  monetarist 
D)  none of the above 
A)  Keynesian 
B)  the new classical 
C)  monetarist 
D)  none of the above

Question 9

New Keynesian economics assumes rational expectations and

Accepted Answer

A)  sticky prices and wages. 
B)  flexible prices and wages. 
C)  flexible prices, but sticky wages. 
D)  flexible wages, but sticky prices. 
A)  sticky prices and wages. 
B)  flexible prices and wages. 
C)  flexible prices, but sticky wages. 
D)  flexible wages, but sticky prices.

Question 10

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

Accepted Answer

A)  encourage firms to hire more workers. 
B)  stimulate capital investment. 
C)  encourage firms to use fewer nonrenewable resources. 
D)  reduce corporate profits. 
A)  encourage firms to hire more workers. 
B)  stimulate capital investment. 
C)  encourage firms to use fewer nonrenewable resources. 
D)  reduce corporate profits.

Question 11

If the stock of money is $250 billion, velocity is 5, and the price level is 10, what is real output?

Accepted Answer

A)  $5 billion 
B)  $125 billion 
C)  $500 billion 
D)  $12,500 billion 
A)  $5 billion 
B)  $125 billion 
C)  $500 billion 
D)  $12,500 billion

Question 12

According to the Lucas supply function, if the expected price level is smaller than the actual price level

Accepted Answer

A)  real output decreases. 
B)  real output increases. 
C)  real output must be at a maximum. 
D)  real output must be at a minimum. 
A)  real output decreases. 
B)  real output increases. 
C)  real output must be at a maximum. 
D)  real output must be at a minimum.

Question 13

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of

Accepted Answer

A)  government intervention and trade regulation. 
B)  wage and price controls. 
C)  closed economies and fiscal spending. 
D)  market clearing and rational expectations. 
A)  government intervention and trade regulation. 
B)  wage and price controls. 
C)  closed economies and fiscal spending. 
D)  market clearing and rational expectations.

Question 14

Too much data is available to test macroeconomic models.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow.   Figure 32.2
-Refer to Figure 32.2. According to Keynes, an expansionary monetary policy in the long run and after all the adjustments have been made

Accepted Answer

A)  does not increase equilibrium output. 
B)  increases equilibrium output above Y1. 
C)  decreases equilibrium output below Y1. 
D)  increases equilibrium output above Y1 and decreases the price level below P1. 
A)  does not increase equilibrium output. 
B)  increases equilibrium output above Y1. 
C)  decreases equilibrium output below Y1. 
D)  increases equilibrium output above Y1 and decreases the price level below P1.

Question 16

The hypothesis that people know the "true model" of the economy and that they use this model to form their expectations of the future is the

Accepted Answer

A)  real business cycle hypothesis. 
B)  Lucas supply function hypothesis. 
C)  rational-expectations hypothesis. 
D)  Laffer hypothesis. 
A)  real business cycle hypothesis. 
B)  Lucas supply function hypothesis. 
C)  rational-expectations hypothesis. 
D)  Laffer hypothesis.

Question 17

Because there may be a time lag between a change in the money supply and its effects on nominal GDP, it is ________ to test whether the velocity of money is constant over time.

Accepted Answer

A)  easy 
B)  difficult 
C)  impossible 
D)  pointless 
A)  easy 
B)  difficult 
C)  impossible 
D)  pointless

Question 18

The velocity of money is the number of times a dollar bill changes hands, on average, during a year.

Accepted Answer

A) True 
 B)False

Question 19

If nominal GDP is $600 billion and the money supply is $200 billion, the velocity of money is

Accepted Answer

A)  0.33. 
B)  1.2. 
C)  3. 
D)  12. 
A)  0.33. 
B)  1.2. 
C)  3. 
D)  12.

Question 20

The quantity theory of money can be written as

Accepted Answer

A)  MV = PY. 
B)  M/V = PY. 
C)  MV = P/Y. 
D)  MP = VP. 
A)  MV = PY. 
B)  M/V = PY. 
C)  MV = P/Y. 
D)  MP = VP.

Exam 32: Alternative Views in Macroeconomics

According to the new classical theory, economic policies are effective

If nominal GDP is $1.2 trillion, velocity is $1.2 trillion multiplied by the stock of money.

A velocity of ________ means money changes hands, on average, every 4 months.

Supporters of supply-side economics claim that Reagan's tax policies were quite successful in stimulating the economy because

Because people may change how they react when economic policies are changed, comparing macroeconomic models is

According to supply-side economists, as tax rates are increased, labor supply should decrease. This implies that the substitution effect of a wage change ________ the income effect of a wage change.

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

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to the ________ economists, under rational expectations an expected decrease in taxes would not change AD or AS.

New Keynesian economics assumes rational expectations and

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

If the stock of money is $250 billion, velocity is 5, and the price level is 10, what is real output?

According to the Lucas supply function, if the expected price level is smaller than the actual price level

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of

Too much data is available to test macroeconomic models.

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to Keynes, an expansionary monetary policy in the long run and after all the adjustments have been made

The hypothesis that people know the "true model" of the economy and that they use this model to form their expectations of the future is the

Because there may be a time lag between a change in the money supply and its effects on nominal GDP, it is ________ to test whether the velocity of money is constant over time.

The velocity of money is the number of times a dollar bill changes hands, on average, during a year.

If nominal GDP is $600 billion and the money supply is $200 billion, the velocity of money is

The quantity theory of money can be written as

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

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