Question 1

Monetarists argue that the amount of money the public will want to hold depends primarily on the level of

Accepted Answer

A) nominal GDP. 
B) investment. 
C) consumption. 
D) prices. 
A) nominal GDP. 
B) investment. 
C) consumption. 
D) prices.

Question 2

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the

Accepted Answer

A) velocity of money is 5. 
B) money supply is $40 billion. 
C) level of the price index is 320. 
D) equilibrium level of GDP is $320 billion. 
A) velocity of money is 5. 
B) money supply is $40 billion. 
C) level of the price index is 320. 
D) equilibrium level of GDP is $320 billion.

Question 3

A coordination failure

Accepted Answer

A) is a real-business-cycle event. 
B) is a self-fulfilling prophesy. 
C) results from the spending-income multiplier. 
D) is a direct outcome of inappropriate fiscal policy. 
A) is a real-business-cycle event. 
B) is a self-fulfilling prophesy. 
C) results from the spending-income multiplier. 
D) is a direct outcome of inappropriate fiscal policy.

Question 4

Monetarists would argue that the severe recession of 2007-2009 was primarily caused by

Accepted Answer

A) adverse aggregate-supply shocks causing tremendous unemployment. 
B) wide swings in investment expenditures driving erratic fluctuations in aggregate demand. 
C) excessive money supply creating a bubble in some sectors of the economy. 
D) too much deregulation of the financial sector in previous years. 
A) adverse aggregate-supply shocks causing tremendous unemployment. 
B) wide swings in investment expenditures driving erratic fluctuations in aggregate demand. 
C) excessive money supply creating a bubble in some sectors of the economy. 
D) too much deregulation of the financial sector in previous years.

Question 5

Mainstream economists support

Accepted Answer

A) adoption of a monetary rule for increases in the money supply. 
B) elimination of efficiency wages and insider-outsider relationships. 
C) the requirement that the government annually balance its budget. 
D) the use of discretionary monetary and fiscal policy for achieving major economic goals. 
A) adoption of a monetary rule for increases in the money supply. 
B) elimination of efficiency wages and insider-outsider relationships. 
C) the requirement that the government annually balance its budget. 
D) the use of discretionary monetary and fiscal policy for achieving major economic goals.

Question 6

In the mainstream view, the severe recession of 2007-2009 was caused by

Accepted Answer

A) an aggregate-supply shock, which caused the AS curve to shift left. 
B) a financial crisis that caused a shrinkage in investment and consumption spending, thereby reducing aggregate demand. 
C) monetary factors, specifically the excessive expansion of money supply brought about by the Federal Reserve, starting in the recession of 2001. 
D) a huge and sudden drop in the velocity of money, causing a significant reduction in both nominal and real GDP. 
A) an aggregate-supply shock, which caused the AS curve to shift left. 
B) a financial crisis that caused a shrinkage in investment and consumption spending, thereby reducing aggregate demand. 
C) monetary factors, specifically the excessive expansion of money supply brought about by the Federal Reserve, starting in the recession of 2001. 
D) a huge and sudden drop in the velocity of money, causing a significant reduction in both nominal and real GDP.

Question 7

The velocity of money is equal to

Accepted Answer

A) 1/MPS. 
B) 1/reserve ratio. 
C) M/GDP. 
D) none of these. 
A) 1/MPS. 
B) 1/reserve ratio. 
C) M/GDP. 
D) none of these.

Question 8

From a monetarist perspective, instability in the macroeconomy arises from

Accepted Answer

A) secular trends in the economy. 
B) the instability of velocity as a policy tool. 
C) discretionary changes in monetary policy. 
D) the use of a monetary rule for monetary policy. 
A) secular trends in the economy. 
B) the instability of velocity as a policy tool. 
C) discretionary changes in monetary policy. 
D) the use of a monetary rule for monetary policy.

Question 9

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

Accepted Answer

A) monetarism 
B) mainstream economics 
C) rational expectations 
D) new classical economics 
A) monetarism 
B) mainstream economics 
C) rational expectations 
D) new classical economics

Question 10

The mainstream view is that macro instability is caused by the volatility of the money supply, which constantly shifts the aggregate demand curve around.

Accepted Answer

A) True 
 B)False

Question 11

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Accepted Answer

A) True 
 B)False

Question 12

The real-business-cycle theory

Accepted Answer

A) is a monetarist view of the business cycle. 
B) is the mainstream view of the business cycle. 
C) assumes that the supply of money is constant. 
D) says that macro instability results from shifts in the long-run aggregate supply curve. 
A) is a monetarist view of the business cycle. 
B) is the mainstream view of the business cycle. 
C) assumes that the supply of money is constant. 
D) says that macro instability results from shifts in the long-run aggregate supply curve.

Question 13

According to mainstream economists, the basic determinant of real output, employment, and the price level is

Accepted Answer

A) information and people's expectations. 
B) the level of aggregate expenditures. 
C) the incentive to work, save, and invest. 
D) the supply of money. 
A) information and people's expectations. 
B) the level of aggregate expenditures. 
C) the incentive to work, save, and invest. 
D) the supply of money.

Question 14

Monetarists believe the private economy is inherently

Accepted Answer

A) unstable and the public sector should be small. 
B) unstable and the public sector should be large. 
C) stable but that the public sector should be large. 
D) stable and that the government sector should be small. 
A) unstable and the public sector should be small. 
B) unstable and the public sector should be large. 
C) stable but that the public sector should be large. 
D) stable and that the government sector should be small.

Question 15

Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following ideas is associated with mainstream economics?

Accepted Answer

A) Capitalist economies tend to be stable. 
B) Monetary policy rules are desirable. 
C) Fiscal policy is a useful stabilization tool. 
D) Crowding-out of investment makes fiscal policy ineffective. 
A) Capitalist economies tend to be stable. 
B) Monetary policy rules are desirable. 
C) Fiscal policy is a useful stabilization tool. 
D) Crowding-out of investment makes fiscal policy ineffective.

Question 17

Monetarists say that fiscal policy, such as a tax cut, will only affect the level of real GDP if it entails a change in the supply of money.

Accepted Answer

A) True 
 B)False

Question 18

New classical economists say that a fully anticipated increase in aggregate demand

Accepted Answer

A) shifts the long-run aggregate supply curve to the right. 
B) shifts the long-run aggregate supply curve to the left. 
C) moves the economy up along its vertical long-run aggregate supply curve. 
D) eventually results in a self-correcting decrease in aggregate demand. 
A) shifts the long-run aggregate supply curve to the right. 
B) shifts the long-run aggregate supply curve to the left. 
C) moves the economy up along its vertical long-run aggregate supply curve. 
D) eventually results in a self-correcting decrease in aggregate demand.

Question 19

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal.Also assume that nominal GDP equals $960 billion and the money supply is $160 billion.From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by

Accepted Answer

A) $13 billion. 
B) $24 billion. 
C) $72 billion. 
D) $80 billion. 
A) $13 billion. 
B) $24 billion. 
C) $72 billion. 
D) $80 billion.

Question 20

New classical economists say that an unanticipated decrease in aggregate demand first

Accepted Answer

A) decreases the price level and real output, and then decreases long-run aggregate supply. 
B) decreases long-run aggregate supply, and then decreases the price level and real output. 
C) reduces short-run aggregate supply, and then reduces long-run aggregate supply. 
D) decreases the price level and real output, and then increases short-run aggregate supply such that the economy returns to the full-employment level of output. 
A) decreases the price level and real output, and then decreases long-run aggregate supply. 
B) decreases long-run aggregate supply, and then decreases the price level and real output. 
C) reduces short-run aggregate supply, and then reduces long-run aggregate supply. 
D) decreases the price level and real output, and then increases short-run aggregate supply such that the economy returns to the full-employment level of output.

Exam 39: Current Issues in Macro Theory and Policy

Monetarists argue that the amount of money the public will want to hold depends primarily on the level of

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the

A coordination failure

Monetarists would argue that the severe recession of 2007-2009 was primarily caused by

Mainstream economists support

In the mainstream view, the severe recession of 2007-2009 was caused by

The velocity of money is equal to

From a monetarist perspective, instability in the macroeconomy arises from

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

The mainstream view is that macro instability is caused by the volatility of the money supply, which constantly shifts the aggregate demand curve around.

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

The real-business-cycle theory

According to mainstream economists, the basic determinant of real output, employment, and the price level is

Monetarists believe the private economy is inherently

Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability.

Which of the following ideas is associated with mainstream economics?

Monetarists say that fiscal policy, such as a tax cut, will only affect the level of real GDP if it entails a change in the supply of money.

New classical economists say that a fully anticipated increase in aggregate demand

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal.Also assume that nominal GDP equals $960 billion and the money supply is $160 billion.From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by

New classical economists say that an unanticipated decrease in aggregate demand first

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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