Question 1

Real-business-cycle theory suggests that changes in

Accepted Answer

A) monetary policy are the single most important cause of macroeconomic instability. 
B) investment spending will have a direct and significant effect on aggregate demand. 
C) technology and resources affect productivity, and thus the long-run growth of aggregate supply. 
D) the velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP. 
A) monetary policy are the single most important cause of macroeconomic instability. 
B) investment spending will have a direct and significant effect on aggregate demand. 
C) technology and resources affect productivity, and thus the long-run growth of aggregate supply. 
D) the velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP.

Question 2

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Accepted Answer

A) True 
 B)False

Question 3

Mainstream economists identify wage-price rigidities as one cause of economic instability.

Accepted Answer

A) True 
 B)False

Question 4

(Last Word) "Market monetarists" believe that the Fed should

Accepted Answer

A) use stock market movements to adjust monetary policy. 
B) follow a strict monetary rule. 
C) use prediction markets to adjust monetary policy. 
D) use inflation targeting to adjust monetary policy. 
A) use stock market movements to adjust monetary policy. 
B) follow a strict monetary rule. 
C) use prediction markets to adjust monetary policy. 
D) use inflation targeting to adjust monetary policy.

Question 5

The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the

Accepted Answer

A) monetary rule. 
B) velocity of money. 
C) equation of exchange. 
D) crowding-out effect. 
A) monetary rule. 
B) velocity of money. 
C) equation of exchange. 
D) crowding-out effect.

Question 6

According to mainstream economists, a restrictive monetary policy might be frustrated, wholly or in part, by

Accepted Answer

A) Treasury sales of gold bullion. 
B) a Treasury surplus. 
C) the desire of households and businesses to hold smaller money balances. 
D) a decrease in V. 
A) Treasury sales of gold bullion. 
B) a Treasury surplus. 
C) the desire of households and businesses to hold smaller money balances. 
D) a decrease in V.

Question 7

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms.
M = $100 
V = 2
Ca = $160
Xn = $10
G = $10
Nominal GDP is

Accepted Answer

A) $100. 
B) $200. 
C) $180. 
D) $50. 
A) $100. 
B) $200. 
C) $180. 
D) $50.

Question 8

An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.

Accepted Answer

A) True 
 B)False

Question 9

If M is $800, P is $2, and Q is 1,200, then

Accepted Answer

A) aggregate expenditures will be $1,600. 
B) aggregate expenditures will be $960,000. 
C) V must be 3. 
D) V must be 1.5. 
A) aggregate expenditures will be $1,600. 
B) aggregate expenditures will be $960,000. 
C) V must be 3. 
D) V must be 1.5.

Question 10

In the insider-outsider theory,

Accepted Answer

A) outsiders are workers who retain employment during recession. 
B) insiders are managers who have more information about their firms' performance than outsiders. 
C) insiders are "principals" and outsiders are "agents." 
D) outsiders are laid-off workers and other qualified unemployed workers. 
A) outsiders are workers who retain employment during recession. 
B) insiders are managers who have more information about their firms' performance than outsiders. 
C) insiders are "principals" and outsiders are "agents." 
D) outsiders are laid-off workers and other qualified unemployed workers.

Question 11

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Accepted Answer

A) mainstream economists 
B) supply-side economists 
C) rational expectations economists 
D) functional finance economists 
A) mainstream economists 
B) supply-side economists 
C) rational expectations economists 
D) functional finance economists

Question 12

According to rational expectations theory, instantaneous market adjustments make

Accepted Answer

A) expansionary economic policy more effective in increasing output. 
B) expansionary economic policy ineffective in increasing output. 
C) economic policy more rational and more stable. 
D) economic policy less rational and less stable. 
A) expansionary economic policy more effective in increasing output. 
B) expansionary economic policy ineffective in increasing output. 
C) economic policy more rational and more stable. 
D) economic policy less rational and less stable.

Question 13

The equation of exchange indicates that an increase in money supply will always lead only to inflation.

Accepted Answer

A) True 
 B)False

Question 14

Monetarists take the position that monetary policy

Accepted Answer

A) is limited by the crowding-out effect on investment. 
B) is enhanced by the crowding-out effect on investment. 
C) should be based on rules rather than discretion. 
D) should be based on discretion rather than rules. 
A) is limited by the crowding-out effect on investment. 
B) is enhanced by the crowding-out effect on investment. 
C) should be based on rules rather than discretion. 
D) should be based on discretion rather than rules.

Question 15

If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will

Accepted Answer

A) increase prices. 
B) increase interest rates. 
C) increase real output. 
D) decrease nominal GDP. 
A) increase prices. 
B) increase interest rates. 
C) increase real output. 
D) decrease nominal GDP.

Question 16

According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the

Accepted Answer

A) successes of macroeconomic policymakers 
B) inability of policymakers to time decisions properly. 
C) reaction of the public to the expected effects of policy changes. 
D) slow impact of policy to stimulate changes in real output and employment. 
A) successes of macroeconomic policymakers 
B) inability of policymakers to time decisions properly. 
C) reaction of the public to the expected effects of policy changes. 
D) slow impact of policy to stimulate changes in real output and employment.

Question 17

In the strict monetarist view, a large increase in the money supply will have

Accepted Answer

A) a large impact on the velocity of money and a large impact on nominal output. 
B) a large impact on the velocity of money and a small impact on nominal output. 
C) no effect on the velocity of money and a large impact on nominal output. 
D) no effect on the velocity of money and a small impact on the nominal output. 
A) a large impact on the velocity of money and a large impact on nominal output. 
B) a large impact on the velocity of money and a small impact on nominal output. 
C) no effect on the velocity of money and a large impact on nominal output. 
D) no effect on the velocity of money and a small impact on the nominal output.

Question 18

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

Accepted Answer

A) True 
 B)False

Question 19

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Accepted Answer

A) reduce the severity of business cycles. 
B) increase the amount of instability in the economy. 
C) increase the rate of inflation. 
D) crowd out much-needed investment spending during times of rapid inflation. 
A) reduce the severity of business cycles. 
B) increase the amount of instability in the economy. 
C) increase the rate of inflation. 
D) crowd out much-needed investment spending during times of rapid inflation.

Question 20

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results,

Accepted Answer

A) a self-correction has occurred. 
B) an adverse aggregate supply shock has occurred. 
C) a coordination failure has occurred. 
D) a real-business downturn has occurred. 
A) a self-correction has occurred. 
B) an adverse aggregate supply shock has occurred. 
C) a coordination failure has occurred. 
D) a real-business downturn has occurred.

Exam 39: Current Issues in Macro Theory and Policy

Real-business-cycle theory suggests that changes in

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Mainstream economists identify wage-price rigidities as one cause of economic instability.

(Last Word) "Market monetarists" believe that the Fed should

The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the

According to mainstream economists, a restrictive monetary policy might be frustrated, wholly or in part, by

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 Ca = $160 Xn = $10 G = $10 Nominal GDP is

An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.

If M is $800, P is $2, and Q is 1,200, then

In the insider-outsider theory,

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

According to rational expectations theory, instantaneous market adjustments make

The equation of exchange indicates that an increase in money supply will always lead only to inflation.

Monetarists take the position that monetary policy

If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will

According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the

In the strict monetarist view, a large increase in the money supply will have

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results,

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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