Question 1

The traditional monetary rule is the idea that

Accepted Answer

A)  the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP. 
B)  the annual rate of increase in the money supply should be equal to the long-term increase in the price level. 
C)  an expansionary ﬁscal policy should always be accompanied by an easy monetary policy. 
D)  monetary policy only affects the economy 6 to 9 months after the money supply is changed. 
A)  the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP. 
B)  the annual rate of increase in the money supply should be equal to the long-term increase in the price level. 
C)  an expansionary ﬁscal policy should always be accompanied by an easy monetary policy. 
D)  monetary policy only affects the economy 6 to 9 months after the money supply is changed.

Question 2

A mainstream criticism of rational expectations theory is that

Accepted Answer

A)  the theorists confuse correlation with causation in interpreting the empirical evidence. 
B)  people do not make consistent forecasting errors that can be exploited by policymakers. 
C)  many markets are not purely competitive and do not adjust rapidly to changing market conditions. 
D)  the data indicate that economic policy does not affect real GDP and employment. 
A)  the theorists confuse correlation with causation in interpreting the empirical evidence. 
B)  people do not make consistent forecasting errors that can be exploited by policymakers. 
C)  many markets are not purely competitive and do not adjust rapidly to changing market conditions. 
D)  the data indicate that economic policy does not affect real GDP and employment.

Question 3

The "real" factors in the real-business-cycle theory include resource availability and technology.

Accepted Answer

A) True 
 B)False

Question 4

One of the basic assumptions of rational expectations theory is that

Accepted Answer

A)  people can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy. 
B)  people are not able to assess the future effects of policy changes, so government can use economic policy effectively. 
C)  markets are not very competitive and fail to adjust quickly to changes in demand and supply. 
D)  people expect government to solve the major unemployment and inﬂation problems facing the nation and behave accordingly. 
A)  people can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy. 
B)  people are not able to assess the future effects of policy changes, so government can use economic policy effectively. 
C)  markets are not very competitive and fail to adjust quickly to changes in demand and supply. 
D)  people expect government to solve the major unemployment and inﬂation problems facing the nation and behave accordingly.

Question 5

Crowding-out results from

Accepted Answer

A)  an increase in the supply of money and a decrease in the velocity of money. 
B)  a decrease in the supply of money and an increase in the velocity of money. 
C)  the inverse relationship between the supply of money and nominal GDP. 
D)  deﬁcit ﬁnancing that increases interest rates and reduces investment. 
A)  an increase in the supply of money and a decrease in the velocity of money. 
B)  a decrease in the supply of money and an increase in the velocity of money. 
C)  the inverse relationship between the supply of money and nominal GDP. 
D)  deﬁcit ﬁnancing that increases interest rates and reduces investment.

Question 6

Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply.

Accepted Answer

A) True 
 B)False

Question 7

Assume there is an increase in government spending ﬁnanced by government borrowing. With a speciﬁc money supply, the consequent

Accepted Answer

A)  contractionary impact might be lessened by the resulting increase in the interest rate. 
B)  expansionary impact might be lessened by the resulting increase in the interest rate. 
C)  contractionary impact might be enhanced by the resulting decline in the interest rate. 
D)  expansionary impact might be enhanced by the resulting decline in the interest rate. 
A)  contractionary impact might be lessened by the resulting increase in the interest rate. 
B)  expansionary impact might be lessened by the resulting increase in the interest rate. 
C)  contractionary impact might be enhanced by the resulting decline in the interest rate. 
D)  expansionary impact might be enhanced by the resulting decline in the interest rate.

Question 8

Which monetarist idea has been absorbed into mainstream macroeconomics?

Accepted Answer

A)  The net export effect has a stronger effect on ﬁscal policy than monetary policy. 
B)  Cuts in tax rates signiﬁcantly increase the productive capacity of the economy over the historical averages. 
C)  Excessive growth in the money supply over long periods leads to inﬂation. 
D)  The federal funds rate is a more important monetary target than the money supply. 
A)  The net export effect has a stronger effect on ﬁscal policy than monetary policy. 
B)  Cuts in tax rates signiﬁcantly increase the productive capacity of the economy over the historical averages. 
C)  Excessive growth in the money supply over long periods leads to inﬂation. 
D)  The federal funds rate is a more important monetary target than the money supply.

Question 9

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, then according to new classical
Economics, the economy will self-correct with a

Accepted Answer

A)  movement from point B to point A. 
B)  movement from point A to point B. 
C)  shift from A $\mathrm { AS } _ { 1 } \text { to } A S _ { 2 }$ 
D)  shift from AD $A D _ { 2 } \text { to } A D _ { 1 }$ 
A)  movement from point B to point A. 
B)  movement from point A to point B. 
C)  shift from A $\mathrm { AS } _ { 1 } \text { to } A S _ { 2 }$ 
D)  shift from AD $A D _ { 2 } \text { to } A D _ { 1 }$

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

The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in

Accepted Answer

A)  real GDP. 
B)  population. 
C)  the level of prices. 
D)  the velocity of money. 
A)  real GDP. 
B)  population. 
C)  the level of prices. 
D)  the velocity of money.

Question 12

According to monetarists, discretionary monetary policy has been a major source of economic
instability.

Accepted Answer

A) True 
 B)False

Question 13

The equation of exchange indicates that

Accepted Answer

A)  $M Q \text { equals } V P \text {. }$ 
B)  the velocity of money and the supply of money vary proportionately with one another. 
C)  other things being equal, an increase in V will increase $P \text { and/or } Q \text {. }$ 
D)  other things being equal, M and P are inversely related. 
A)  $M Q \text { equals } V P \text {. }$ 
B)  the velocity of money and the supply of money vary proportionately with one another. 
C)  other things being equal, an increase in V will increase $P \text { and/or } Q \text {. }$ 
D)  other things being equal, M and P are inversely related.

Question 14

Accepted Answer

A)  $A D _ { 1 } \text { would shift to } A D _ { 2 } \text {. }$ 
B)  $A D _ { 1 } \text { would shift to } A D _ { 3 } \text {. }$ 
C)  $A D _ { 1 } \text { would shift to } A D _ { 4 } \text {. }$ 
D)  $\mathrm { AS } _ { 2 } \text { would shift to } \mathrm { AS } _ { 1 } \text {. }$ 
A)  $A D _ { 1 } \text { would shift to } A D _ { 2 } \text {. }$ 
B)  $A D _ { 1 } \text { would shift to } A D _ { 3 } \text {. }$ 
C)  $A D _ { 1 } \text { would shift to } A D _ { 4 } \text {. }$ 
D)  $\mathrm { AS } _ { 2 } \text { would shift to } \mathrm { AS } _ { 1 } \text {. }$

Question 15

In the monetarist equation of exchange, MV is the monetarist counterpart of

Accepted Answer

A)  money supply. 
B)  aggregate expenditures. 
C)  total saving. 
D)  government spending. 
A)  money supply. 
B)  aggregate expenditures. 
C)  total saving. 
D)  government spending.

Question 16

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would

Accepted Answer

A)  increase real interest rates and drive out investment spending. 
B)  eliminate monetary policy as a stabilization tool. 
C)  force government to undertake expansionary ﬁscal policy during inﬂation and contractionary ﬁscal policy during recession. 
D)  expand the size of the federal government. 
A)  increase real interest rates and drive out investment spending. 
B)  eliminate monetary policy as a stabilization tool. 
C)  force government to undertake expansionary ﬁscal policy during inﬂation and contractionary ﬁscal policy during recession. 
D)  expand the size of the federal government.

Question 17

The equation underlying the mainstream view of macroeconomics is

Accepted Answer

A)  $M V = P Q$ 
B)  $C _ { a } + I _ { g } + X _ { n } + G = \text { GDP. }$ 
C)  $S = a - b Y$ 
D)  $\mathrm { GDP } = P \times Q$ 
A)  $M V = P Q$ 
B)  $C _ { a } + I _ { g } + X _ { n } + G = \text { GDP. }$ 
C)  $S = a - b Y$ 
D)  $\mathrm { GDP } = P \times Q$

Question 18

Which of the following is a component of the equation of exchange?

Accepted Answer

A)  consumption 
B)  the interest rate 
C)  investment 
D)  the velocity of money 
A)  consumption 
B)  the interest rate 
C)  investment 
D)  the velocity of money

Question 19

If the money supply rises from $600 billion to $800 billion and nominal GDP stays unchanged at $4,800 billion, then the income velocity of money

Accepted Answer

A)  rises by 33 percent. 
B)  falls by 33 percent. 
C)  rises from 6 to 8. 
D)  falls from 8 to 6. 
A)  rises by 33 percent. 
B)  falls by 33 percent. 
C)  rises from 6 to 8. 
D)  falls from 8 to 6.

Question 20

Accepted Answer

A)  self-correct through a shift in AS, which brings output back to Q $\mathrm { Q } _ { 1 } .$ 
B)  self-correct through a shift in AD, which brings output back to Q $\mathrm { Q } _ { 1 } .$ 
C)  need the government to implement expansionary policy in order to bring output back to
$Q _ { 1 } .$ 
D)  need the government to implement contractionary policy in order to bring output back to
$\mathrm { Q } _ { 1 } \text {. }$ 
A)  self-correct through a shift in AS, which brings output back to Q $\mathrm { Q } _ { 1 } .$ 
B)  self-correct through a shift in AD, which brings output back to Q $\mathrm { Q } _ { 1 } .$ 
C)  need the government to implement expansionary policy in order to bring output back to
$Q _ { 1 } .$ 
D)  need the government to implement contractionary policy in order to bring output back to
$\mathrm { Q } _ { 1 } \text {. }$

The traditional monetary rule is the idea that

A mainstream criticism of rational expectations theory is that

The "real" factors in the real-business-cycle theory include resource availability and technology.

One of the basic assumptions of rational expectations theory is that

Crowding-out results from

Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply.

Assume there is an increase in government spending ﬁnanced by government borrowing. With a speciﬁc money supply, the consequent

Which monetarist idea has been absorbed into mainstream macroeconomics?

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

The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in

According to monetarists, discretionary monetary policy has been a major source of economic instability.

The equation of exchange indicates that

In the monetarist equation of exchange, MV is the monetarist counterpart of

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would

The equation underlying the mainstream view of macroeconomics is

Which of the following is a component of the equation of exchange?

If the money supply rises from $600 billion to $800 billion and nominal GDP stays unchanged at $4,800 billion, then the income velocity of money

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

The traditional monetary rule is the idea that

A mainstream criticism of rational expectations theory is that

The "real" factors in the real-business-cycle theory include resource availability and technology.

One of the basic assumptions of rational expectations theory is that

Crowding-out results from

Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply.

Assume there is an increase in government spending ﬁnanced by government borrowing. With a speciﬁc money supply, the consequent

Which monetarist idea has been absorbed into mainstream macroeconomics?

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, then according to new classical Economics, the economy will self-correct with a

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

The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in

According to monetarists, discretionary monetary policy has been a major source of economic instability.

The equation of exchange indicates that

In the monetarist equation of exchange, MV is the monetarist counterpart of

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would

The equation underlying the mainstream view of macroeconomics is

Which of the following is a component of the equation of exchange?

If the money supply rises from $600 billion to $800 billion and nominal GDP stays unchanged at $4,800 billion, then the income velocity of money

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