Question 1

According to the quantity theory of money, nominal GDP will double if the money supply is

Accepted Answer

A)  reduced by one-half. 
B)  reduced threefold. 
C)  doubled. 
D)  tripled. 
A)  reduced by one-half. 
B)  reduced threefold. 
C)  doubled. 
D)  tripled.

Question 2

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause

Accepted Answer

A)  the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to decrease. 
B)  the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase. 
C)  the interest rate to decrease, the quantity demanded of money to decrease, and the velocity of money to increase. 
D)  the interest rate to decrease, the quantity demanded of money to increase, and the velocity of money to decrease. 
A)  the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to decrease. 
B)  the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase. 
C)  the interest rate to decrease, the quantity demanded of money to decrease, and the velocity of money to increase. 
D)  the interest rate to decrease, the quantity demanded of money to increase, and the velocity of money to decrease.

Question 3

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 new classical economists, under rational expectations an expected decrease in taxes would

Accepted Answer

A)  shift AS1 to the right. 
B)  shift AD1 to the right. 
C)  shift AD1 to the left. 
D)  not change AD or AS. 
A)  shift AS1 to the right. 
B)  shift AD1 to the right. 
C)  shift AD1 to the left. 
D)  not change AD or AS.

Question 4

If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

Accepted Answer

A)  0.125. 
B)  8. 
C)  12. 
D)  20. 
A)  0.125. 
B)  8. 
C)  12. 
D)  20.

Question 5

If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

Accepted Answer

A)  $2.5 billion 
B)  $10 billion 
C)  $40 billion 
D)  $160 billion 
A)  $2.5 billion 
B)  $10 billion 
C)  $40 billion 
D)  $160 billion

Question 6

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 new classical economists, under rational expectations an expected decrease in government spending would

Accepted Answer

A)  shift AS1 to the right. 
B)  shift AD1 to the right. 
C)  shift AD1 to the left. 
D)  not change AD and AS. 
A)  shift AS1 to the right. 
B)  shift AD1 to the right. 
C)  shift AD1 to the left. 
D)  not change AD and AS.

Question 7

Keynes believed which of the following?

Accepted Answer

A)  The government has a role to play in fighting inflation, but not in fighting unemployment. 
B)  The government has a role to play in fighting unemployment, but not in fighting inflation. 
C)  The government does not have a role to play in fighting inflation or unemployment. 
D)  The government has a role to play in fighting inflation and unemployment. 
A)  The government has a role to play in fighting inflation, but not in fighting unemployment. 
B)  The government has a role to play in fighting unemployment, but not in fighting inflation. 
C)  The government does not have a role to play in fighting inflation or unemployment. 
D)  The government has a role to play in fighting inflation and unemployment.

Question 8

If GDP increases and the stock of money does not change, the income velocity of money will increase.

Accepted Answer

A) True 
 B)False

Question 9

Keynesians believe the economy can be managed using monetary and fiscal policy.

Accepted Answer

A) True 
 B)False

Question 10

In economics, the concept of active government intervention in the macroeconomy 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 11

People are said to have rational expectations if they

Accepted Answer

A)  use all available information in forming their expectations. 
B)  assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years. 
C)  merely guess at the inflation rate. 
D)  assume that this year's inflation rate will be the same as last year's inflation rate. 
A)  use all available information in forming their expectations. 
B)  assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years. 
C)  merely guess at the inflation rate. 
D)  assume that this year's inflation rate will be the same as last year's inflation rate.

Question 12

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

Accepted Answer

A)  money demand; inflation rate 
B)  money demand; money supply 
C)  money supply; price level 
D)  money supply; money demand 
A)  money demand; inflation rate 
B)  money demand; money supply 
C)  money supply; price level 
D)  money supply; money demand

Question 13

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 ________ economists, under rational expectations an expected decrease in government spending 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 14

If nominal GDP is $300 billion and the velocity is 3, the stock of money is $900 billion.

Accepted Answer

A) True 
 B)False

Question 15

The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes

Accepted Answer

A)  will have no effect on the actual price level. 
B)  will have no effect on real output. 
C)  will have no effect on the expected price level. 
D)  will have no effect on nominal output. 
A)  will have no effect on the actual price level. 
B)  will have no effect on real output. 
C)  will have no effect on the expected price level. 
D)  will have no effect on nominal output.

Question 16

The Laffer curve shows the relationship between

Accepted Answer

A)  aggregate supply and aggregate demand. 
B)  unemployment and inflation. 
C)  consumer spending and business spending. 
D)  tax rates and tax revenues. 
A)  aggregate supply and aggregate demand. 
B)  unemployment and inflation. 
C)  consumer spending and business spending. 
D)  tax rates and tax revenues.

Question 17

Which of the following would be considered a supply-side policy?

Accepted Answer

A)  an increase in the minimum wage that would cause consumer spending to increase 
B)  an increase in government spending that would lead to increased aggregate demand 
C)  investment tax credits for businesses to encourage investment 
D)  a decrease in the growth of the money supply 
A)  an increase in the minimum wage that would cause consumer spending to increase 
B)  an increase in government spending that would lead to increased aggregate demand 
C)  investment tax credits for businesses to encourage investment 
D)  a decrease in the growth of the money supply

Question 18

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

Accepted Answer

A)  the monetary schools 
B)  the classical school 
C)  the Keynesian school 
D)  the rational expectation school 
A)  the monetary schools 
B)  the classical school 
C)  the Keynesian school 
D)  the rational expectation school

Question 19

Monetarists argue that the money supply should

Accepted Answer

A)  grow at a rate equal to the average growth of real output. 
B)  grow at a rate slower than the average growth of real output. 
C)  grow at a rate greater than the average growth of real output. 
D)  be held constant over the business cycle. 
A)  grow at a rate equal to the average growth of real output. 
B)  grow at a rate slower than the average growth of real output. 
C)  grow at a rate greater than the average growth of real output. 
D)  be held constant over the business cycle.

Question 20

According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a ________ price surprise will work ________ hours.

Accepted Answer

A)  positive; more 
B)  positive; fewer 
C)  negative; fewer 
D)  negative; the same number of 
A)  positive; more 
B)  positive; fewer 
C)  negative; fewer 
D)  negative; the same number of

Exam 32: Alternative Views in Macroeconomics

According to the quantity theory of money, nominal GDP will double if the money supply is

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause

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 new classical economists, under rational expectations an expected decrease in taxes would

If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

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 new classical economists, under rational expectations an expected decrease in government spending would

Keynes believed which of the following?

If GDP increases and the stock of money does not change, the income velocity of money will increase.

Keynesians believe the economy can be managed using monetary and fiscal policy.

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

People are said to have rational expectations if they

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

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 ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.

If nominal GDP is $300 billion and the velocity is 3, the stock of money is $900 billion.

The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes

The Laffer curve shows the relationship between

Which of the following would be considered a supply-side policy?

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

Monetarists argue that the money supply should

According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a ________ price surprise will work ________ hours.

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 quantity theory of money implies that a 7% increase in the will eventually cause a 7% increase in the .

According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a price surprise will work hours.