Question 1

Over the past 50 years, the velocity of money has remained very stable in the United States.

Accepted Answer

A) True 
 B)False

Question 2

Keynesians believe that government policies can improve economic performance.

Accepted Answer

A) True 
 B)False

Question 3

Most monetarists blame much of the instability in the economy on

Accepted Answer

A)  the federal government. 
B)  the World Bank. 
C)  big business. 
D)  immigration. 
A)  the federal government. 
B)  the World Bank. 
C)  big business. 
D)  immigration.

Question 4

The Economic Recovery Tax Act of 1981 allowed firms to ________ their capital at a ________ for tax purposes. This decreased tax liability and encouraged investment.

Accepted Answer

A)  depreciate; slow and consistent rate 
B)  depreciate; very rapid rate 
C)  appreciate; slow and consistent rate 
D)  appreciate; very rapid rate 
A)  depreciate; slow and consistent rate 
B)  depreciate; very rapid rate 
C)  appreciate; slow and consistent rate 
D)  appreciate; very rapid rate

Question 5

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

Accepted Answer

A)  prices and wages will be set at levels that do not clear the goods and labor markets. 
B)  prices will be set at levels that ensure equilibrium in the goods market, but wages will be set at levels that do not clear the labor market. 
C)  prices and wages will be set at levels that ensure equilibrium in the goods and labor markets. 
D)  wages will be set at levels that ensure equilibrium in the labor market, but prices will be set at levels that do not clear the goods market. 
A)  prices and wages will be set at levels that do not clear the goods and labor markets. 
B)  prices will be set at levels that ensure equilibrium in the goods market, but wages will be set at levels that do not clear the labor market. 
C)  prices and wages will be set at levels that ensure equilibrium in the goods and labor markets. 
D)  wages will be set at levels that ensure equilibrium in the labor market, but prices will be set at levels that do not clear the goods market.

Question 6

According to the rational expectations hypothesis, unpredictable shocks explain the existence of

Accepted Answer

A)  the federal deficit. 
B)  unemployment. 
C)  the national debt. 
D)  trade barriers. 
A)  the federal deficit. 
B)  unemployment. 
C)  the national debt. 
D)  trade barriers.

Question 7

in economics, the links between the money market and the goods market was first emphasized by

Accepted Answer

A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes. 
A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes.

Question 8

According to the rational expectation hypothesis, unpredictable shocks may cause

Accepted Answer

A)  disequilibrium in the labor market. 
B)  uncontrollable inflation. 
C)  long-lasting recession. 
D)  sustained levels of unemployment. 
A)  disequilibrium in the labor market. 
B)  uncontrollable inflation. 
C)  long-lasting recession. 
D)  sustained levels of unemployment.

Question 9

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called

Accepted Answer

A)  new Keynesian economics. 
B)  supply-side economics. 
C)  monetarism. 
D)  real business-cycle economics 
A)  new Keynesian economics. 
B)  supply-side economics. 
C)  monetarism. 
D)  real business-cycle economics

Question 10

A velocity of 4 means money stays with each owner for an average of 4 years.

Accepted Answer

A) True 
 B)False

Question 11

According to the Lucas supply function, in combination with the assumption that expectations are rational, change in government policy can affect real output only if

Accepted Answer

A)  the policy change is correctly anticipated by the public. 
B)  the policy change is a surprise. 
C)  the policy change is a mix of both fiscal and monetary policy changes. 
D)  expansionary policy changes are made. 
A)  the policy change is correctly anticipated by the public. 
B)  the policy change is a surprise. 
C)  the policy change is a mix of both fiscal and monetary policy changes. 
D)  expansionary policy changes are made.

Question 12

Most monetarists ________ advocate expanding the money supply during bad times and ________ advocate slowing the growth of the money supply during good times.

Accepted Answer

A)  do; do 
B)  do; do not 
C)  do not; do 
D)  do not; do not 
A)  do; do 
B)  do; do not 
C)  do not; do 
D)  do not; do not

Question 13

Supply side economists think the equilibrium output is determined by the supply of money.

Accepted Answer

A) True 
 B)False

Question 14

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 rational expectation theory, an unanticipated increase in money supply

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 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 the monetarists, a recession can be caused when

Accepted Answer

A)  AD1 shifts to the right. 
B)  AD1 shifts to the left. 
C)  AS1 shifts to the left. 
D)  LRAS shifts to the left. 
A)  AD1 shifts to the right. 
B)  AD1 shifts to the left. 
C)  AS1 shifts to the left. 
D)  LRAS shifts to the left.

Question 16

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Accepted Answer

A) True 
 B)False

Question 17

Monetarists believe that the underlying economy is stable.

Accepted Answer

A) True 
 B)False

Question 18

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 monetarists, ________ can be caused when AD1 shifts to the left.

Accepted Answer

A)  an increase in money demand 
B)  a recession 
C)  inflation 
D)  stagflation 
A)  an increase in money demand 
B)  a recession 
C)  inflation 
D)  stagflation

Question 19

If GDP increases and the stock of money increases, the income velocity of money will definitely increase.

Accepted Answer

A) True 
 B)False

Question 20

If the demand for money depends on the interest rate, then a 15% increase in the money supply will increase

Accepted Answer

A)  nominal GDP by 15%. 
B)  nominal GDP by less than 15%. 
C)  nominal GDP by more than 30%. 
D)  real GDP by 30%. 
A)  nominal GDP by 15%. 
B)  nominal GDP by less than 15%. 
C)  nominal GDP by more than 30%. 
D)  real GDP by 30%.

Exam 32: Alternative Views in Macroeconomics

Over the past 50 years, the velocity of money has remained very stable in the United States.

Keynesians believe that government policies can improve economic performance.

Most monetarists blame much of the instability in the economy on

The Economic Recovery Tax Act of 1981 allowed firms to ________ their capital at a ________ for tax purposes. This decreased tax liability and encouraged investment.

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

According to the rational expectations hypothesis, unpredictable shocks explain the existence of

in economics, the links between the money market and the goods market was first emphasized by

According to the rational expectation hypothesis, unpredictable shocks may cause

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called

A velocity of 4 means money stays with each owner for an average of 4 years.

According to the Lucas supply function, in combination with the assumption that expectations are rational, change in government policy can affect real output only if

Most monetarists ________ advocate expanding the money supply during bad times and ________ advocate slowing the growth of the money supply during good times.

Supply side economists think the equilibrium output is determined by the supply of money.

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 rational expectation theory, an unanticipated increase in money supply

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 monetarists, a recession can be caused when

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Monetarists believe that the underlying economy is stable.

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 monetarists, ________ can be caused when AD1 shifts to the left.

If GDP increases and the stock of money increases, the income velocity of money will definitely increase.

If the demand for money depends on the interest rate, then a 15% increase in the money supply will increase

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 Economic Recovery Tax Act of 1981 allowed firms to their capital at a for tax purposes. This decreased tax liability and encouraged investment.

Most monetarists advocate expanding the money supply during bad times and advocate slowing the growth of the money supply during good times.

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 monetarists, ________ can be caused when AD₁ shifts to the left.