Question 1

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 2

Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will

Accepted Answer

A)  move the economy from a to b to c. 
B)  move the economy directly from a to c. 
C)  move the economy from a to a new equilibrium at b. 
D)  shift the AS curve to the right. 
A)  move the economy from a to b to c. 
B)  move the economy directly from a to c. 
C)  move the economy from a to a new equilibrium at b. 
D)  shift the AS curve to the right.

Question 3

Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will

Accepted Answer

A)  move the economy from a to b to c. 
B)  shift the AS curve to the left. 
C)  move the economy from c to a new equilibrium at b. 
D)  move the economy directly from c to a. 
A)  move the economy from a to b to c. 
B)  shift the AS curve to the left. 
C)  move the economy from c to a new equilibrium at b. 
D)  move the economy directly from c to a.

Question 4

Proponents of inﬂation targeting generally think that

Accepted Answer

A)  the economy will have fewer, shorter, and less severe business cycles if the Fed holds the rate of inﬂation to low, targeted levels from year to year. 
B)  low interest rates are inﬂationary and high interest rates are deﬂationary. 
C)  ﬁscal policy is more effective in stabilizing the economy than monetary policy. 
D)  the Fed should strive to achieve zero inﬂation. 
A)  the economy will have fewer, shorter, and less severe business cycles if the Fed holds the rate of inﬂation to low, targeted levels from year to year. 
B)  low interest rates are inﬂationary and high interest rates are deﬂationary. 
C)  ﬁscal policy is more effective in stabilizing the economy than monetary policy. 
D)  the Fed should strive to achieve zero inﬂation.

Question 5

List the four different views of the causes of macroeconomic instability in the economy.

Accepted Answer

The four different views of th

Question 6

At the equilibrium level of GDP,

Accepted Answer

A)  MV = nominal GDP. 
B)  MV = real GDP. 
C)  M = nominal GDP. 
D)  $V = 1 / \mathrm { MPS }$ 
A)  MV = nominal GDP. 
B)  MV = real GDP. 
C)  M = nominal GDP. 
D)  $V = 1 / \mathrm { MPS }$

Question 7

The equation of exchange indicates that

Accepted Answer

A)  MV = PQ. 
B)  other things equal, an increase in the demand for money will increase $P \text { and/or } Q \text {. }$ 
C)  the velocity and the supply of money vary directly with one another. 
D)  MP = VQ. 
A)  MV = PQ. 
B)  other things equal, an increase in the demand for money will increase $P \text { and/or } Q \text {. }$ 
C)  the velocity and the supply of money vary directly with one another. 
D)  MP = VQ.

Question 8

In the monetarist view,

Accepted Answer

A)  changes in investment spending are a major source of macroeconomic instability. 
B)  inappropriate monetary policy is a major source of macroeconomic stability. 
C)  adverse aggregate supply shocks are a major source of macroeconomic instability. 
D)  the fact that prices and wages are ﬂexible is a major source of macroeconomic instability. 
A)  changes in investment spending are a major source of macroeconomic instability. 
B)  inappropriate monetary policy is a major source of macroeconomic stability. 
C)  adverse aggregate supply shocks are a major source of macroeconomic instability. 
D)  the fact that prices and wages are ﬂexible is a major source of macroeconomic instability.

Question 9

Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

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

A coordination failure is said to occur when people do not reach a mutually beneﬁcial equilibrium
because they lack some way to jointly coordinate their actions to achieve it.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Accepted Answer

A)  has decreased historically because of increased accessibility to credit. 
B)  rises during recession and falls during periods of full employment. 
C)  falls during recession and rises during periods of full employment. 
D)  is relatively stable. 
A)  has decreased historically because of increased accessibility to credit. 
B)  rises during recession and falls during periods of full employment. 
C)  falls during recession and rises during periods of full employment. 
D)  is relatively stable.

Question 13

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending. Also suppose that all households and
Consumers would be better off if they did not reduce their spending. This situation best describes
The

Accepted Answer

A)  real-business-cycle theory. 
B)  rational expectations theory. 
C)  concept of coordination failures. 
D)  adaptive expectations theory. 
A)  real-business-cycle theory. 
B)  rational expectations theory. 
C)  concept of coordination failures. 
D)  adaptive expectations theory.

Question 14

The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

Accepted Answer

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

Question 15

As monetarists view the equation of exchange,

Accepted Answer

A)  V changes erratically and unpredictably. 
B)  V is quite stable. 
C)  V usually changes in the same direction of any given change in M. 
D)  V usually changes in the opposite direction of any given change in M. 
A)  V changes erratically and unpredictably. 
B)  V is quite stable. 
C)  V usually changes in the same direction of any given change in M. 
D)  V usually changes in the opposite direction of any given change in M.

Question 16

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

Accepted Answer

A)  increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged. 
B)  increase in aggregate demand by an equal amount, so real output and the price level would increase. 
C)  decrease in aggregate demand, so real output would increase and the price level would decrease. 
D)  decrease in aggregate demand, so real output and the price level would increase. 
A)  increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged. 
B)  increase in aggregate demand by an equal amount, so real output and the price level would increase. 
C)  decrease in aggregate demand, so real output would increase and the price level would decrease. 
D)  decrease in aggregate demand, so real output and the price level would increase.

Question 17

If the economy diverges from its full-employment output, new classical economics would suggest that

Accepted Answer

A)  a change in the velocity of money would be all that is needed to return it to its full- employment output. 
B)  an improvement in insider-outsider relationships is all that is needed to return it to its full- employment output. 
C)  an eﬃciency wage in the economy would return it to its full-employment output. 
D)  internal mechanisms within the economy would automatically return it to its full- employment output. 
A)  a change in the velocity of money would be all that is needed to return it to its full- employment output. 
B)  an improvement in insider-outsider relationships is all that is needed to return it to its full- employment output. 
C)  an eﬃciency wage in the economy would return it to its full-employment output. 
D)  internal mechanisms within the economy would automatically return it to its full- employment output.

Question 18

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

Accepted Answer

A)  monetarism 
B)  mainstream economics 
C)  supply-side economics 
D)  rational expectations theory 
A)  monetarism 
B)  mainstream economics 
C)  supply-side economics 
D)  rational expectations theory

Question 19

The theory of rational expectations calls for monetary policy rules because

Accepted Answer

A)  of past policy errors. 
B)  policy tends to be countercyclical. 
C)  of the inability to time policy decisions. 
D)  of the reaction of the public to the expected effects of policy. 
A)  of past policy errors. 
B)  policy tends to be countercyclical. 
C)  of the inability to time policy decisions. 
D)  of the reaction of the public to the expected effects of policy.

Question 20

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to
monetarists who believe that monetary policy is a stabilizing factor.

Accepted Answer

A) True 
 B)False

Exam 19: Current Issues in Macro Theory and Policy

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

Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will

Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will

Proponents of inﬂation targeting generally think that

List the four different views of the causes of macroeconomic instability in the economy.

At the equilibrium level of GDP,

The equation of exchange indicates that

In the monetarist view,

Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

A coordination failure is said to occur when people do not reach a mutually beneﬁcial equilibrium because they lack some way to jointly coordinate their actions to achieve it.

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.

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending. Also suppose that all households and Consumers would be better off if they did not reduce their spending. This situation best describes The

The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

As monetarists view the equation of exchange,

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n)

If the economy diverges from its full-employment output, new classical economics would suggest that

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

The theory of rational expectations calls for monetary policy rules because

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor.

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. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD₁ to AD₂ will

Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD₂ to AD₁ will