Question 1

Real business cycle theory assumes complete price and wage flexibility.

Accepted Answer

A) True 
 B)False

Question 2

A velocity of 3 means money changes hands, on average, every

Accepted Answer

A)  3 years. 
B)  4 months. 
C)  3 months. 
D)  1/3 of a month. 
A)  3 years. 
B)  4 months. 
C)  3 months. 
D)  1/3 of a month.

Question 3

There is very little disagreement when it comes to macroeconomic theory.

Accepted Answer

A) True 
 B)False

Question 4

Most empirical testing in macroeconomics uses data beginning from about 1950.

Accepted Answer

A) True 
 B)False

Question 5

According to the Lucas supply function, if people's expectations are ________, then the amount of output they produce is not related to the price level.

Accepted Answer

A)  on target 
B)  too low 
C)  too high 
D)  none of the above 
A)  on target 
B)  too low 
C)  too high 
D)  none of the above

Question 6

If nominal GDP is $200 billion and the stock of money is $40 billion, the velocity is 5.

Accepted Answer

A) True 
 B)False

Question 7

If all firms behave in a way consistent with having rational expectations, the total amount of labor supplied will be, on average, equal to the total amount of labor demanded.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is not consistent with the quantity theory of money?

Accepted Answer

A)  The velocity of money can be affected by how frequently workers are paid. 
B)  The velocity of money can be affected by the development of new financial instruments, such as interest-bearing checking accounts. 
C)  The velocity of money can be affected by the manner in which the banking system clears transactions between banks. 
D)  Velocity can change with changes in the interest rate. 
A)  The velocity of money can be affected by how frequently workers are paid. 
B)  The velocity of money can be affected by the development of new financial instruments, such as interest-bearing checking accounts. 
C)  The velocity of money can be affected by the manner in which the banking system clears transactions between banks. 
D)  Velocity can change with changes in the interest rate.

Question 9

The ratio of nominal GDP to the stock of money is the

Accepted Answer

A)  money multiplier. 
B)  velocity of money. 
C)  real GDP. 
D)  GDP deflator. 
A)  money multiplier. 
B)  velocity of money. 
C)  real GDP. 
D)  GDP deflator.

Question 10

In the quantity theory of money, velocity is assumed

Accepted Answer

A)  to equal 1.4. 
B)  constant. 
C)  to increase with increases in the money supply. 
D)  to be a declining number. 
A)  to equal 1.4. 
B)  constant. 
C)  to increase with increases in the money supply. 
D)  to be a declining number.

Question 11

Velocity is not constant if

Accepted Answer

A)  the money supply does not depend on the interest rate. 
B)  the supply of money depends on the interest rate. 
C)  the price level increases as aggregate output increases. 
D)  the demand for money depends on the interest rate. 
A)  the money supply does not depend on the interest rate. 
B)  the supply of money depends on the interest rate. 
C)  the price level increases as aggregate output increases. 
D)  the demand for money depends on the interest rate.

Question 12

The Lucas supply function states that real output can change from its fixed level

Accepted Answer

A)  only if there is a positive price surprise. 
B)  only if there is a negative price surprise. 
C)  only if there is no price surprise. 
D)  Both A and B are possible. 
A)  only if there is a positive price surprise. 
B)  only if there is a negative price surprise. 
C)  only if there is no price surprise. 
D)  Both A and B are possible.

Question 13

According to the rational expectation hypothesis, disequilibrium may exist in the labor market because

Accepted Answer

A)  of unpredictable shocks. 
B)  firms don't know the "true model." 
C)  workers don't know the "true model." 
D)  of predictable shocks. 
A)  of unpredictable shocks. 
B)  firms don't know the "true model." 
C)  workers don't know the "true model." 
D)  of predictable shocks.

Question 14

If the demand for money depends on the interest rate, then a ________ in the money supply will increase nominal GDP by ________.

Accepted Answer

A)  5% increase; more than 5% 
B)  5% increase; less than 5% 
C)  5% decrease; more than 5% 
D)  5% decrease; exactly 5% 
A)  5% increase; more than 5% 
B)  5% increase; less than 5% 
C)  5% decrease; more than 5% 
D)  5% decrease; exactly 5%

Question 15

New Keynesian economics assumes rational expectations, flexible wages, and flexible prices.

Accepted Answer

A) True 
 B)False

Question 16

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. A cut in tax rates will decrease tax revenue if the economy moves from Point

Accepted Answer

A)  A to B. 
B)  B to A. 
C)  C to B. 
D)  A to D. 
A)  A to B. 
B)  B to A. 
C)  C to B. 
D)  A to D.

Question 17

If the stock of money is $40 billion, velocity is 3, and real output is $60 billion, what is the price level?

Accepted Answer

A)  0.5 
B)  2 
C)  2.5 
D)  4 
A)  0.5 
B)  2 
C)  2.5 
D)  4

Question 18

The Lucas supply function, real business cycle theory, and the new Keynesian model all assume rational expectations.

Accepted Answer

A) True 
 B)False

Question 19

Most empirical data support the idea that money demand depends on the interest rate.

Accepted Answer

A) True 
 B)False

Question 20

According to ________ economics, the government needs to focus on policies to stimulate supply.

Accepted Answer

A)  Keynesian 
B)  monetarist 
C)  supply-side 
D)  new classical 
A)  Keynesian 
B)  monetarist 
C)  supply-side 
D)  new classical

Exam 32: Alternative Views in Macroeconomics

Real business cycle theory assumes complete price and wage flexibility.

A velocity of 3 means money changes hands, on average, every

There is very little disagreement when it comes to macroeconomic theory.

Most empirical testing in macroeconomics uses data beginning from about 1950.

According to the Lucas supply function, if people's expectations are ________, then the amount of output they produce is not related to the price level.

If nominal GDP is $200 billion and the stock of money is $40 billion, the velocity is 5.

If all firms behave in a way consistent with having rational expectations, the total amount of labor supplied will be, on average, equal to the total amount of labor demanded.

Which of the following statements is not consistent with the quantity theory of money?

The ratio of nominal GDP to the stock of money is the

In the quantity theory of money, velocity is assumed

Velocity is not constant if

The Lucas supply function states that real output can change from its fixed level

According to the rational expectation hypothesis, disequilibrium may exist in the labor market because

If the demand for money depends on the interest rate, then a ________ in the money supply will increase nominal GDP by ________.

New Keynesian economics assumes rational expectations, flexible wages, and flexible prices.

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. A cut in tax rates will decrease tax revenue if the economy moves from Point

If the stock of money is $40 billion, velocity is 3, and real output is $60 billion, what is the price level?

The Lucas supply function, real business cycle theory, and the new Keynesian model all assume rational expectations.

Most empirical data support the idea that money demand depends on the interest rate.

According to ________ economics, the government needs to focus on policies to stimulate supply.

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

If the demand for money depends on the interest rate, then a in the money supply will increase nominal GDP by .