Question 1

According to the new classical theory, economic policies are

Accepted Answer

A)  effective only if anticipated. 
B)  ineffective if unanticipated. 
C)  ineffective if anticipated. 
D)  ineffective, whether anticipated or unanticipated. 
A)  effective only if anticipated. 
B)  ineffective if unanticipated. 
C)  ineffective if anticipated. 
D)  ineffective, whether anticipated or unanticipated.

Question 2

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that consumers are

Accepted Answer

A)  more influenced by their own experiences than by actual government numbers. 
B)  more influenced by actual government numbers than by their own experiences. 
C)  equally influenced by actual government numbers and their own experiences. 
D)  rarely influenced by either actual government numbers or by their own experiences. 
A)  more influenced by their own experiences than by actual government numbers. 
B)  more influenced by actual government numbers than by their own experiences. 
C)  equally influenced by actual government numbers and their own experiences. 
D)  rarely influenced by either actual government numbers or by their own experiences.

Question 3

If relevant information can be obtained at no cost, people are ________ when they fail to use all available information given that there are usually ________ to making a wrong forecast.

Accepted Answer

A)  behaving rationally; costs 
B)  behaving rationally; no costs 
C)  not behaving rationally; costs 
D)  not behaving rationally; no costs 
A)  behaving rationally; costs 
B)  behaving rationally; no costs 
C)  not behaving rationally; costs 
D)  not behaving rationally; no costs

Question 4

A velocity of ________ means money changes hands, on average, every 2 months.

Accepted Answer

A)  6 
B)  2 
C)  1.5 
D)  0.5 
A)  6 
B)  2 
C)  1.5 
D)  0.5

Question 5

The quantity theory of money assumes the stock of money is constant.

Accepted Answer

A) True 
 B)False

Question 6

Any test of the rational expectations hypothesis must show that expectations are formed rationally and

Accepted Answer

A)  the model being used is the true model. 
B)  the velocity of money is constant. 
C)  there are no price surprises. 
D)  all policy changes are anticipated. 
A)  the model being used is the true model. 
B)  the velocity of money is constant. 
C)  there are no price surprises. 
D)  all policy changes are anticipated.

Question 7

According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that

Accepted Answer

A)  the income effect of a wage change is greater than the substitution effect of a wage change. 
B)  the substitution effect of a wage change is greater than the income effect of a wage change. 
C)  there is no income effect when tax rates are changed. 
D)  there is no substitution effect when tax rates are changed. 
A)  the income effect of a wage change is greater than the substitution effect of a wage change. 
B)  the substitution effect of a wage change is greater than the income effect of a wage change. 
C)  there is no income effect when tax rates are changed. 
D)  there is no substitution effect when tax rates are changed.

Question 8

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________.

Accepted Answer

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

Question 9

Many economists challenged the idea of passive government involvement in the economy following the inflation of the 1970s and early 1980s, and the recessions of 1974-1975 and 1980-1982.

Accepted Answer

A) True 
 B)False

Question 10

A price surprise is equal to the expected price level minus the actual price level.

Accepted Answer

A) True 
 B)False

Question 11

The velocity of money is

Accepted Answer

A)  the number of times a dollar bill exchanges hands in a year. 
B)  the ratio of deposits to money supply. 
C)  the number of times the Fed increases money supply in a year. 
D)  the relationship between money supply and money demand. 
A)  the number of times a dollar bill exchanges hands in a year. 
B)  the ratio of deposits to money supply. 
C)  the number of times the Fed increases money supply in a year. 
D)  the relationship between money supply and money demand.

Question 12

The velocity of money is the ratio of ________ to ________.

Accepted Answer

A)  real GDP; the money demand 
B)  nominal GDP; the stock of money 
C)  the money supply; the asset demand for money 
D)  consumption; investment 
A)  real GDP; the money demand 
B)  nominal GDP; the stock of money 
C)  the money supply; the asset demand for money 
D)  consumption; investment

Question 13

Velocity will be ________ if the demand for money with respect to the interest rate is perfectly elastic.

Accepted Answer

A)  negative 
B)  constant 
C)  variable 
D)  zero 
A)  negative 
B)  constant 
C)  variable 
D)  zero

Question 14

According to the Lucas supply function, ________ will have an effect on real output.

Accepted Answer

A)  only announced policy changes 
B)  any unanticipated policy changes 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes 
A)  only announced policy changes 
B)  any unanticipated policy changes 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes

Question 15

According to the rational expectations hypothesis, unemployment

Accepted Answer

A)  does not exist in the short run. 
B)  may exist, and when it does, it stays for a long period of time. 
C)  may exist, and if it does, it will be temporary. 
D)  only exists in the long run. 
A)  does not exist in the short run. 
B)  may exist, and when it does, it stays for a long period of time. 
C)  may exist, and if it does, it will be temporary. 
D)  only exists in the long run.

Question 16

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going up because its own output price is going up, it will

Accepted Answer

A)  decrease its production. 
B)  increase its production. 
C)  keep its production level constant. 
D)  increase expectations regarding its own output price. 
A)  decrease its production. 
B)  increase its production. 
C)  keep its production level constant. 
D)  increase expectations regarding its own output price.

Question 17

The Laffer curve has proven to be accurate for tax rates above 10 percent.

Accepted Answer

A) True 
 B)False

Question 18

Among the propositions of the Keynesian school of thought is

Accepted Answer

A)  economic policies are ineffective. 
B)  aggregate supply management is the key to a stable economy. 
C)  aggregate demand determines equilibrium output. 
D)  rational expectations. 
A)  economic policies are ineffective. 
B)  aggregate supply management is the key to a stable economy. 
C)  aggregate demand determines equilibrium output. 
D)  rational expectations.

Question 19

The equation Y = f(P - Pe) represents the

Accepted Answer

A)  income velocity of money. 
B)  equation of exchange. 
C)  Keynesian consumption function. 
D)  Lucas supply function. 
A)  income velocity of money. 
B)  equation of exchange. 
C)  Keynesian consumption function. 
D)  Lucas supply function.

Question 20

Those who believe in the rational expectations hypothesis advocate

Accepted Answer

A)  active fiscal policy during recessions. 
B)  active monetary policy during recessions. 
C)  active monetary policy during inflationary periods only. 
D)  no policy intervention. 
A)  active fiscal policy during recessions. 
B)  active monetary policy during recessions. 
C)  active monetary policy during inflationary periods only. 
D)  no policy intervention.

Exam 32: Alternative Views in Macroeconomics

According to the new classical theory, economic policies are

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that consumers are

If relevant information can be obtained at no cost, people are ________ when they fail to use all available information given that there are usually ________ to making a wrong forecast.

A velocity of ________ means money changes hands, on average, every 2 months.

The quantity theory of money assumes the stock of money is constant.

Any test of the rational expectations hypothesis must show that expectations are formed rationally and

According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________.

Many economists challenged the idea of passive government involvement in the economy following the inflation of the 1970s and early 1980s, and the recessions of 1974-1975 and 1980-1982.

A price surprise is equal to the expected price level minus the actual price level.

The velocity of money is

The velocity of money is the ratio of ________ to ________.

Velocity will be ________ if the demand for money with respect to the interest rate is perfectly elastic.

According to the Lucas supply function, ________ will have an effect on real output.

According to the rational expectations hypothesis, unemployment

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going up because its own output price is going up, it will

The Laffer curve has proven to be accurate for tax rates above 10 percent.

Among the propositions of the Keynesian school of thought is

The equation Y = f(P - Pe) represents the

Those who believe in the rational expectations hypothesis advocate

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 relevant information can be obtained at no cost, people are when they fail to use all available information given that there are usually to making a wrong forecast.

According to new classical economists, if the Fed the money supply after it announces it will do so, output remains constant and the price level .

The velocity of money is the ratio of to .

The equation Y = f(P - P^e) represents the