Question 1

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

Accepted Answer

A)  2.5 times per year. 
B)  2 times per year. 
C)  1.6 times per year. 
D)  16 times per year. 
A)  2.5 times per year. 
B)  2 times per year. 
C)  1.6 times per year. 
D)  16 times per year.

Question 2

In the equation of exchange, the level of aggregate expenditures is indicated by

Accepted Answer

A)  MV. 
B)  $M V / Q$ 
C)  PM. 
D)  $M V / P .$ 
A)  MV. 
B)  $M V / Q$ 
C)  PM. 
D)  $M V / P .$

Question 3

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Accepted Answer

A)  demand will have a large effect on the price level but a temporary effect on output. 
B)  demand will have a small effect on the price level but a permanent effect on output. 
C)  demand will have a large effect on the price level and a large effect on output. 
D)  supply will have a large effect on the price level but a temporary effect on output. 
A)  demand will have a large effect on the price level but a temporary effect on output. 
B)  demand will have a small effect on the price level but a permanent effect on output. 
C)  demand will have a large effect on the price level and a large effect on output. 
D)  supply will have a large effect on the price level but a temporary effect on output.

Question 4

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

Accepted Answer

A)  lesser work effort 
B)  a lower wage rate 
C)  increased job turnover 
D)  reduced supervision costs 
A)  lesser work effort 
B)  a lower wage rate 
C)  increased job turnover 
D)  reduced supervision costs

Question 5

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

Accepted Answer

A)  artful Fed management of interest rates. 
B)  inﬂation targeting. 
C)  nominal GDP targeting. 
D)  inﬂationary and recessionary gap analysis. 
A)  artful Fed management of interest rates. 
B)  inﬂation targeting. 
C)  nominal GDP targeting. 
D)  inﬂationary and recessionary gap analysis.

Question 6

Answer this question based on the diagram and the equation of exchange. Assume that the velocity of money is constant at 4. Suppose that the increase of aggregate supply from A AS1 to AS2 indicates
the economy's average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by

Accepted Answer

A)  zero percent per year. 
B)  4 percent per year. 
C)  10 percent per year. 
D)  30 percent per year. 
A)  zero percent per year. 
B)  4 percent per year. 
C)  10 percent per year. 
D)  30 percent per year.

Question 7

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 8

(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 9

New classical economists see the economy as incapable of self-correction when disturbed and
pushed away from its full-employment level of real output.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

(Last Word) Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate), claiming primarily that it will

Accepted Answer

A)  promote economic stability by ensuring that total spending will grow at a predictable rate each year. 
B)  prevent high rates of inﬂation. 
C)  keep the economy at its natural rate of unemployment. 
D)  prevent real GDP from growing too much. 
A)  promote economic stability by ensuring that total spending will grow at a predictable rate each year. 
B)  prevent high rates of inﬂation. 
C)  keep the economy at its natural rate of unemployment. 
D)  prevent real GDP from growing too much.

Question 12

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Accepted Answer

A)  $140 billion. 
B)  $180 billion. 
C)  $220 billion. 
D)  $260 billion. 
A)  $140 billion. 
B)  $180 billion. 
C)  $220 billion. 
D)  $260 billion.

Question 13

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 14

Rational expectations theory allows for temporary changes in output due to expansionary policy,
whereas adaptive expectations theory holds that no such changes in output could occur.

Accepted Answer

A) True 
 B)False

Question 15

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Accepted Answer

A)  demand will have a large effect on the price level but a small effect on output. 
B)  demand will have a small effect on the price level but a large effect on output. 
C)  demand will have a large effect on the price level but no effect on output. 
D)  supply will have a large effect on the price level but no effect on output. 
A)  demand will have a large effect on the price level but a small effect on output. 
B)  demand will have a small effect on the price level but a large effect on output. 
C)  demand will have a large effect on the price level but no effect on output. 
D)  supply will have a large effect on the price level but no effect on output.

Question 16

Real-business-cycle theory focuses on factors affecting

Accepted Answer

A)  aggregate demand. 
B)  aggregate supply. 
C)  the velocity of money. 
D)  consumer spending. 
A)  aggregate demand. 
B)  aggregate supply. 
C)  the velocity of money. 
D)  consumer spending.

Question 17

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 18

Explain the equation of exchange.

Accepted Answer

The fundamental equation of monetarism i

Question 19

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Accepted Answer

A)  mainstream macroeconomics. 
B)  rational expectations theory. 
C)  real-business-cycle theory. 
D)  monetarism. 
A)  mainstream macroeconomics. 
B)  rational expectations theory. 
C)  real-business-cycle theory. 
D)  monetarism.

Question 20

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

Accepted Answer

A)  the asset demand for money varies inversely with the rate of interest. 
B)  government borrowing to ﬁnance a deﬁcit will raise the interest rate and reduce private investment. 
C)  government borrowing will reduce the supply of money in circulation and depress the GDP. 
D)  government borrowing to ﬁnance a deﬁcit will lower interest rates, increase money balances, and lower velocity. 
A)  the asset demand for money varies inversely with the rate of interest. 
B)  government borrowing to ﬁnance a deﬁcit will raise the interest rate and reduce private investment. 
C)  government borrowing will reduce the supply of money in circulation and depress the GDP. 
D)  government borrowing to ﬁnance a deﬁcit will lower interest rates, increase money balances, and lower velocity.

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

In the equation of exchange, the level of aggregate expenditures is indicated by

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

According to rational expectations theory, instantaneous market adjustments make

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

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

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

(Last Word) Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate), claiming primarily that it will

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Monetarists take the position that monetary policy

Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur.

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Real-business-cycle theory focuses on factors affecting

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

Explain the equation of exchange.

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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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Exam 19: Current Issues in Macro Theory and Policy

If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is

In the equation of exchange, the level of aggregate expenditures is indicated by

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Which of the following is a likely result of ﬁrms paying eﬃciency wages?

In recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for

According to rational expectations theory, instantaneous market adjustments make

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

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

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

(Last Word) Market monetarists advocate that the Fed "target the forecast" (of the predicted nominal GDP growth rate), claiming primarily that it will

Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by

Monetarists take the position that monetary policy

Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur.

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate

Real-business-cycle theory focuses on factors affecting

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

Explain the equation of exchange.

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

According to monetarists, an expansionary ﬁscal policy is a weak stabilization tool because

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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

Filters