Question 1

According to the Lucas supply function, the economy will produce more output when

Accepted Answer

A)  prices are unexpectedly higher than when prices are at their expected level. 
B)  wages are below the expected level. 
C)  prices are unexpectedly lower than when prices are at their expected level. 
D)  prices are exactly equal to the expected level. 
A)  prices are unexpectedly higher than when prices are at their expected level. 
B)  wages are below the expected level. 
C)  prices are unexpectedly lower than when prices are at their expected level. 
D)  prices are exactly equal to the expected level.

Question 2

According to the rational expectations hypothesis, the occurrence of unemployment is due to

Accepted Answer

A)  imperfect information. 
B)  unpredictable shocks. 
C)  downwardly rigid wages. 
D)  a deficient level of aggregate demand. 
A)  imperfect information. 
B)  unpredictable shocks. 
C)  downwardly rigid wages. 
D)  a deficient level of aggregate demand.

Question 3

Any test of rational expectations is a joint test of the underlying model that expectations are formed rationally.

Accepted Answer

A) True 
 B)False

Question 4

John Maynard Keynes was the author of

Accepted Answer

A)  The Communist Manifesto. 
B)  The Wealth of Nations. 
C)  Eat the Rich: A Treatise on Economics. 
D)  The General Theory of Employment, Interest, and Money. 
A)  The Communist Manifesto. 
B)  The Wealth of Nations. 
C)  Eat the Rich: A Treatise on Economics. 
D)  The General Theory of Employment, Interest, and Money.

Question 5

A velocity of 6 means money changes hands, on average, every

Accepted Answer

A)  6 years. 
B)  6 months. 
C)  2 months. 
D)  1/6 of a month. 
A)  6 years. 
B)  6 months. 
C)  2 months. 
D)  1/6 of a month.

Question 6

The rational-expectations hypothesis suggests that errors in forecasting future inflation rates are due to

Accepted Answer

A)  random, unpredictable events. 
B)  the fact that people assume that the current inflation rate will continue into the future. 
C)  the fact that people consistently underestimate future inflation. 
D)  the fact that people consistently overestimate future inflation. 
A)  random, unpredictable events. 
B)  the fact that people assume that the current inflation rate will continue into the future. 
C)  the fact that people consistently underestimate future inflation. 
D)  the fact that people consistently overestimate future inflation.

Question 7

The velocity of money is equal to

Accepted Answer

A)  P × M / Y. 
B)  Y × P × M. 
C)  P × Y / M. 
D)  P / M × Y. 
A)  P × M / Y. 
B)  Y × P × M. 
C)  P × Y / M. 
D)  P / M × Y.

Question 8

Most monetarists advocate an activist monetary stabilization policy.

Accepted Answer

A) True 
 B)False

Question 9

The key variable in monetarism is the velocity of money.

Accepted Answer

A) True 
 B)False

Question 10

According to the Laffer curve, an increase in the tax rate may decrease tax revenues.

Accepted Answer

A) True 
 B)False

Question 11

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that two important factors in influencing ________ are gas prices and media attention to price increases.

Accepted Answer

A)  the income velocity of money 
B)  the stock of money 
C)  interest rates 
D)  consumer perceptions of inflation 
A)  the income velocity of money 
B)  the stock of money 
C)  interest rates 
D)  consumer perceptions of inflation

Question 12

The problem with the traditional macroeconomic treatment of expectations of inflation is that

Accepted Answer

A)  the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people. 
B)  the model assumes that individuals will merely guess at what the inflation rate will be. 
C)  in the model people always assume that inflation will be zero. 
D)  the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking. 
A)  the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people. 
B)  the model assumes that individuals will merely guess at what the inflation rate will be. 
C)  in the model people always assume that inflation will be zero. 
D)  the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

Question 13

In economics, the concept of aggregate demand 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 14

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

Accepted Answer

A)  what they perceive past inflation to have been. 
B)  equal to the actual estimates of past inflation made by the government. 
C)  directly related to the interest rate. 
D)  relatively unpredictable. 
A)  what they perceive past inflation to have been. 
B)  equal to the actual estimates of past inflation made by the government. 
C)  directly related to the interest rate. 
D)  relatively unpredictable.

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 ________ economists, under rational expectations an expected increase 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 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. The tax rate that will ________ is associated with Point B.

Accepted Answer

A)  minimize tax revenue 
B)  maximize tax revenue 
C)  maximize unemployment 
D)  minimize inflation 
A)  minimize tax revenue 
B)  maximize tax revenue 
C)  maximize unemployment 
D)  minimize inflation

Question 17

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

Accepted Answer

A)  neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B)  an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output. 
C)  both anticipated monetary and fiscal policy changes will affect real output. 
D)  an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output. 
A)  neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B)  an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output. 
C)  both anticipated monetary and fiscal policy changes will affect real output. 
D)  an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output.

Question 18

Suppose that the stock of money is $250 billion and nominal GDP is $2,000 billion. The velocity of money is

Accepted Answer

A)  0.125. 
B)  6. 
C)  8. 
D)  2,250. 
A)  0.125. 
B)  6. 
C)  8. 
D)  2,250.

Question 19

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

Accepted Answer

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

Question 20

The velocity of money is 4. If nominal GDP is $1,200 billion then the stock of money

Accepted Answer

A)  is $300 billion. 
B)  is $400 billion. 
C)  is $500 billion. 
D)  is $4,800 billion. 
A)  is $300 billion. 
B)  is $400 billion. 
C)  is $500 billion. 
D)  is $4,800 billion.

Exam 32: Alternative Views in Macroeconomics

According to the Lucas supply function, the economy will produce more output when

According to the rational expectations hypothesis, the occurrence of unemployment is due to

Any test of rational expectations is a joint test of the underlying model that expectations are formed rationally.

John Maynard Keynes was the author of

A velocity of 6 means money changes hands, on average, every

The rational-expectations hypothesis suggests that errors in forecasting future inflation rates are due to

The velocity of money is equal to

Most monetarists advocate an activist monetary stabilization policy.

The key variable in monetarism is the velocity of money.

According to the Laffer curve, an increase in the tax rate may decrease tax revenues.

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that two important factors in influencing ________ are gas prices and media attention to price increases.

The problem with the traditional macroeconomic treatment of expectations of inflation is that

In economics, the concept of aggregate demand was first emphasized by

Related to the Economics in Practice on p. 645: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

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 increase in government spending would not change AD or AS.

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. The tax rate that will ________ is associated with Point B.

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

Suppose that the stock of money is $250 billion and nominal GDP is $2,000 billion. The velocity of money is

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

The velocity of money is 4. If nominal GDP is $1,200 billion then the stock of money

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