Question 1

Which of the following is not an aggregate-demand-side explanation of business cycles?

Accepted Answer

A)  the real-business-cycle theory 
B)  the idea of coordination failures 
C)  mainstream macroeconomics 
D)  monetarism 
A)  the real-business-cycle theory 
B)  the idea of coordination failures 
C)  mainstream macroeconomics 
D)  monetarism

Question 2

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.

Question 3

Rational expectations theory considers the aggregate

Accepted Answer

A)  demand curve to be vertical. 
B)  supply curve to be vertical. 
C)  supply curve to be horizontal. 
D)  demand curve to be horizontal. 
A)  demand curve to be vertical. 
B)  supply curve to be vertical. 
C)  supply curve to be horizontal. 
D)  demand curve to be horizontal.

Question 4

Refer to the diagram and assume the economy initially is in equilibrium at point a. In the mainstream view, a decline in aggregate demand from AD1 to AD2 would likely move the economy

Accepted Answer

A)  directly from a to d. 
B)  directly from a to b. 
C)  from a to c, then quickly from c to d. 
D)  from a to c, then eventually from c to b. 
A)  directly from a to d. 
B)  directly from a to b. 
C)  from a to c, then quickly from c to d. 
D)  from a to c, then eventually from c to b.

Question 5

The theory of rational expectations concludes that

Accepted Answer

A)  the public's expectations can inﬂuence the outcome of monetary policy but not of ﬁscal policy. 
B)  the public's expectations can inﬂuence the outcome of ﬁscal policy but not of monetary policy. 
C)  the public's expectations as to the effects of economic policies tends to reinforce the effectiveness of those policies. 
D)  by reacting in its self-interest to the expected effects of stabilization policy, the public tends to negate the impact of those policies. 
A)  the public's expectations can inﬂuence the outcome of monetary policy but not of ﬁscal policy. 
B)  the public's expectations can inﬂuence the outcome of ﬁscal policy but not of monetary policy. 
C)  the public's expectations as to the effects of economic policies tends to reinforce the effectiveness of those policies. 
D)  by reacting in its self-interest to the expected effects of stabilization policy, the public tends to negate the impact of those policies.

Question 6

Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A
$A S _ { 1 }$ . If
There is an unanticipated increase in aggregate demand and the economy self-corrects, then the
Adaptive-expectations adjustment path would go from point

Accepted Answer

A)  A directly to B. 
B)  A to B to C. 
C)  B to A to D. 
D)  A to B to C to D. 
A)  A directly to B. 
B)  A to B to C. 
C)  B to A to D. 
D)  A to B to C to D.

Question 7

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 8

Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will bring
about a direct and proportional change in nominal GDP.

Accepted Answer

A) True 
 B)False

Question 9

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy
creates instability.

Accepted Answer

A) True 
 B)False

Question 10

Mainstream economists contend that a policy rule based on the equation of exchange breaks down because

Accepted Answer

A)  there is a tight relationship between the money supply and nominal GDP. 
B)  velocity is more variable and unpredictable than expected. 
C)  the money supply increases at a constant, not a variable, rate. 
D)  nominal GDP is directly related to changes in the price level. 
A)  there is a tight relationship between the money supply and nominal GDP. 
B)  velocity is more variable and unpredictable than expected. 
C)  the money supply increases at a constant, not a variable, rate. 
D)  nominal GDP is directly related to changes in the price level.

Question 11

Refer to the graph. Assume that the economy was initially in equilibrium at point A. If there is a signiﬁcant technological innovation in the economy, then according to real-business-cycle theory,
Aggregate

Accepted Answer

A)  demand will shift, which constitutes the full extent of the volatility. 
B)  demand will shift, which causes a corresponding shift in aggregate supply. 
C)  supply will shift, which causes a corresponding shift in aggregate demand. 
D)  supply will shift, but such shifts are very rare in the real economy. 
A)  demand will shift, which constitutes the full extent of the volatility. 
B)  demand will shift, which causes a corresponding shift in aggregate supply. 
C)  supply will shift, which causes a corresponding shift in aggregate demand. 
D)  supply will shift, but such shifts are very rare in the real economy.

Question 12

Mainstream economists think that

Accepted Answer

A)  market participants change their actions in response to anticipated price-level changes such that no change in real output occurs. 
B)  the economy self-corrects when unanticipated events divert it from its full-employment level of real output. 
C)  the downward inﬂexibility of wages and prices may leave the economy stuck in a costly recession for long periods. 
D)  signiﬁcant changes in technology and resource availability cause macroeconomic instability. 
A)  market participants change their actions in response to anticipated price-level changes such that no change in real output occurs. 
B)  the economy self-corrects when unanticipated events divert it from its full-employment level of real output. 
C)  the downward inﬂexibility of wages and prices may leave the economy stuck in a costly recession for long periods. 
D)  signiﬁcant changes in technology and resource availability cause macroeconomic instability.

Question 13

In 2012, the Fed adopted a ﬂexible version of

Accepted Answer

A)  a monetary-growth rule. 
B)  inﬂation targeting. 
C)  a balanced-budget policy. 
D)  a do-nothing approach. 
A)  a monetary-growth rule. 
B)  inﬂation targeting. 
C)  a balanced-budget policy. 
D)  a do-nothing approach.

Question 14

If the money supply is constant when both nominal and real GDP are rising, we can conclude that

Accepted Answer

A)  tax rates have been increased. 
B)  the velocity of money must be increasing. 
C)  interest rates are falling. 
D)  the unemployment rate is rising. 
A)  tax rates have been increased. 
B)  the velocity of money must be increasing. 
C)  interest rates are falling. 
D)  the unemployment rate is rising.

Question 15

Rational expectations theory assumes that

Accepted Answer

A)  people behave rationally and that all product and resource prices are ﬂexible both upward and downward. 
B)  ﬁrms pay above-market wages to elicit work effort. 
C)  markets fail to coordinate the actions of households and businesses. 
D)  markets are dominated by monopolistic ﬁrms. 
A)  people behave rationally and that all product and resource prices are ﬂexible both upward and downward. 
B)  ﬁrms pay above-market wages to elicit work effort. 
C)  markets fail to coordinate the actions of households and businesses. 
D)  markets are dominated by monopolistic ﬁrms.

Question 16

In a full-employment economy, a rise in M will cause inﬂation unless

Accepted Answer

A)  V rises in proportion to the increase in M. 
B)  the quantity of goods produced declines proportionately. 
C)  tax reductions accompany the increase in the money supply. 
D)  the velocity of money diminishes. 
A)  V rises in proportion to the increase in M. 
B)  the quantity of goods produced declines proportionately. 
C)  tax reductions accompany the increase in the money supply. 
D)  the velocity of money diminishes.

Question 17

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

Accepted Answer

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

Question 18

Real-business-cycle theory views changes in resource availability and technology as shifting
aggregate demand and thus causing macroeconomic instability.

Accepted Answer

A) True 
 B)False

Question 19

"Targeting the forecast" is the policy that best describes which of the following views?

Accepted Answer

A)  real-business-cycle theory 
B)  rational expectations theory 
C)  market monetarism 
D)  the Keynesian view 
A)  real-business-cycle theory 
B)  rational expectations theory 
C)  market monetarism 
D)  the Keynesian view

Question 20

Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A
$A S _ { L R 1 }$ If
The economy experiences a change in technology that increases productivity and resources, then
Real-business-cycle theory would suggest that this macroeconomic instability would eventually
Produce a new equilibrium at point

Accepted Answer

A)  B. 
B)  C. 
C)  D. 
D)  E. 
A)  B. 
B)  C. 
C)  D. 
D)  E.

Which of the following is not an aggregate-demand-side explanation of business cycles?

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

Rational expectations theory considers the aggregate

Refer to the diagram and assume the economy initially is in equilibrium at point a. In the mainstream view, a decline in aggregate demand from AD₁ to AD₂ would likely move the economy

The theory of rational expectations concludes that

Mainstream economists support

Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will bring about a direct and proportional change in nominal GDP.

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Mainstream economists contend that a policy rule based on the equation of exchange breaks down because

Refer to the graph. Assume that the economy was initially in equilibrium at point A. If there is a signiﬁcant technological innovation in the economy, then according to real-business-cycle theory, Aggregate

Mainstream economists think that

In 2012, the Fed adopted a ﬂexible version of

If the money supply is constant when both nominal and real GDP are rising, we can conclude that

Rational expectations theory assumes that

In a full-employment economy, a rise in M will cause inﬂation unless

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

Real-business-cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.

"Targeting the forecast" is the policy that best describes which of the following views?

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

Exam 19: Current Issues in Macro Theory and Policy

Which of the following is not an aggregate-demand-side explanation of business cycles?

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

Rational expectations theory considers the aggregate

Refer to the diagram and assume the economy initially is in equilibrium at point a. In the mainstream view, a decline in aggregate demand from AD1 to AD2 would likely move the economy

The theory of rational expectations concludes that

Refer to the graph. Assume that the economy is in initial equilibrium where AD AD1A D _ { 1 }AD1​ intersects A AS1A S _ { 1 }AS1​ . If There is an unanticipated increase in aggregate demand and the economy self-corrects, then the Adaptive-expectations adjustment path would go from point

Mainstream economists support

Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will bring about a direct and proportional change in nominal GDP.

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Mainstream economists contend that a policy rule based on the equation of exchange breaks down because

Refer to the graph. Assume that the economy was initially in equilibrium at point A. If there is a signiﬁcant technological innovation in the economy, then according to real-business-cycle theory, Aggregate

Mainstream economists think that

In 2012, the Fed adopted a ﬂexible version of

If the money supply is constant when both nominal and real GDP are rising, we can conclude that

Rational expectations theory assumes that

In a full-employment economy, a rise in M will cause inﬂation unless

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

Real-business-cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.

"Targeting the forecast" is the policy that best describes which of the following views?

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

Refer to the diagram and assume the economy initially is in equilibrium at point a. In the mainstream view, a decline in aggregate demand from AD₁ to AD₂ would likely move the economy