Question 1

Modern mainstream macroeconomists agree with the monetarists that

Accepted Answer

A)  the Fed should increase the money supply at a ﬁxed annual rate. 
B)  velocity is highly stable. 
C)  ﬁscal policy is largely ineffective. 
D)  "money matters" in the macroeconomy. 
A)  the Fed should increase the money supply at a ﬁxed annual rate. 
B)  velocity is highly stable. 
C)  ﬁscal policy is largely ineffective. 
D)  "money matters" in the macroeconomy.

Question 2

In the real-business-cycle theory,

Accepted Answer

A)  declines in real output cause declines in the money supply and thus aggregate demand. 
B)  decreases in long-run aggregate supply are fully anticipated and therefore do not reduce real output. 
C)  technology is constant. 
D)  economic instability results from inappropriate monetary policy. 
A)  declines in real output cause declines in the money supply and thus aggregate demand. 
B)  decreases in long-run aggregate supply are fully anticipated and therefore do not reduce real output. 
C)  technology is constant. 
D)  economic instability results from inappropriate monetary policy.

Question 3

Economist Milton Friedman is most closely associated with

Accepted Answer

A)  Keynesian economics. 
B)  the rational expectations theory. 
C)  supply-side economics. 
D)  monetarism. 
A)  Keynesian economics. 
B)  the rational expectations theory. 
C)  supply-side economics. 
D)  monetarism.

Question 4

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 5

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will
occur.

Accepted Answer

A) True 
 B)False

Question 6

The velocity of money measures the

Accepted Answer

A)  proportion of the money supply held as an asset. 
B)  ratio of the transactions demand to the asset demand for money. 
C)  average annual rate of increase in the money supply. 
D)  number of times per year the average dollar is spent on ﬁnal goods and services. 
A)  proportion of the money supply held as an asset. 
B)  ratio of the transactions demand to the asset demand for money. 
C)  average annual rate of increase in the money supply. 
D)  number of times per year the average dollar is spent on ﬁnal goods and services.

Question 7

From a rational expectations perspective, an easy money policy is likely to be completely

Accepted Answer

A)  ineffective unless the increase in the money supply is unanticipated. 
B)  effective unless the increase in the money supply is unanticipated. 
C)  ineffective unless the increase in the money supply is anticipated. 
D)  effective unless the increase in the money supply is anticipated. 
A)  ineffective unless the increase in the money supply is unanticipated. 
B)  effective unless the increase in the money supply is unanticipated. 
C)  ineffective unless the increase in the money supply is anticipated. 
D)  effective unless the increase in the money supply is anticipated.

Question 8

The rational expectations perspective suggests that

Accepted Answer

A)  ﬁscal policy is more powerful than monetary policy. 
B)  monetary policy is more powerful than ﬁscal policy. 
C)  ﬁscal and monetary policy are not likely to achieve their stated aims. 
D)  ﬁscal policy works only to the extent that it is accompanied by fully anticipated changes in the money supply. 
A)  ﬁscal policy is more powerful than monetary policy. 
B)  monetary policy is more powerful than ﬁscal policy. 
C)  ﬁscal and monetary policy are not likely to achieve their stated aims. 
D)  ﬁscal policy works only to the extent that it is accompanied by fully anticipated changes in the money supply.

Question 9

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 10

Accepted Answer

A)  supply creates its own demand. 
B)  nominal wages are (at least for a time) inﬂexible downward. 
C)  ﬁrms misperceive the price-level decline as being permanent. 
D)  deﬂation reduces the purchasing power of the dollar. 
A)  supply creates its own demand. 
B)  nominal wages are (at least for a time) inﬂexible downward. 
C)  ﬁrms misperceive the price-level decline as being permanent. 
D)  deﬂation reduces the purchasing power of the dollar.

Question 11

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

Accepted Answer

A)  the buying of government securities by the Treasury. 
B)  the selling of government securities by the Treasury. 
C)  a cut in the Federal funds rate. 
D)  a cut in the discount rate. 
A)  the buying of government securities by the Treasury. 
B)  the selling of government securities by the Treasury. 
C)  a cut in the Federal funds rate. 
D)  a cut in the discount rate.

Question 12

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Accepted Answer

A)  brings forth greater work effort. 
B)  increases supervision costs. 
C)  increases job turnover. 
D)  increases worker absenteeism. 
A)  brings forth greater work effort. 
B)  increases supervision costs. 
C)  increases job turnover. 
D)  increases worker absenteeism.

Question 13

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Accepted Answer

A)  5 percent. 
B)  2 percent. 
C)  0 percent. 
D)  8 percent. 
A)  5 percent. 
B)  2 percent. 
C)  0 percent. 
D)  8 percent.

Question 14

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary
policy and their criticisms of policy rules.

Accepted Answer

Mainstream economists think that discret

Question 15

Mainstream macroeconomics has embraced the

Accepted Answer

A)  rational expectations view that stabilization policy is totally ineffective. 
B)  monetarist view that the Fed should increase the money supply at a ﬁxed annual rate. 
C)  rational expectations view that expectations can shift the aggregate demand and aggregate supply curves. 
D)  monetarist view that an increase in government spending crowds out an equal amount of investment spending. 
A)  rational expectations view that stabilization policy is totally ineffective. 
B)  monetarist view that the Fed should increase the money supply at a ﬁxed annual rate. 
C)  rational expectations view that expectations can shift the aggregate demand and aggregate supply curves. 
D)  monetarist view that an increase in government spending crowds out an equal amount of investment spending.

Question 16

Monetarists recommend that the supply of money should be increased at a constant rate each year,
proportionate with the long-run growth of real output.

Accepted Answer

A) True 
 B)False

Question 17

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

Accepted Answer

A)  unanticipated price level change. 
B)  fully anticipated price level change. 
C)  mutually beneﬁcial equilibrium. 
D)  insider-outsider relationship. 
A)  unanticipated price level change. 
B)  fully anticipated price level change. 
C)  mutually beneﬁcial equilibrium. 
D)  insider-outsider relationship.

Question 18

In new classical economics, the change in output caused by a "price-level surprise"

Accepted Answer

A)  is shown as a shift of the long-run aggregate supply curve. 
B)  does not alter the rate of unemployment, even in the short run. 
C)  is soon reversed through a shift of the short-run aggregate supply curve. 
D)  permanently changes the rate of unemployment. 
A)  is shown as a shift of the long-run aggregate supply curve. 
B)  does not alter the rate of unemployment, even in the short run. 
C)  is soon reversed through a shift of the short-run aggregate supply curve. 
D)  permanently changes the rate of unemployment.

Question 19

According to real-business-cycle theory,

Accepted Answer

A)  monetary factors affecting aggregate demand cause macroeconomic instability. 
B)  recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand. 
C)  when real wages fall during recessions, "real" unemployment rates rise. 
D)  the net long-run costs of business ﬂuctuations are severe. 
A)  monetary factors affecting aggregate demand cause macroeconomic instability. 
B)  recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand. 
C)  when real wages fall during recessions, "real" unemployment rates rise. 
D)  the net long-run costs of business ﬂuctuations are severe.

Question 20

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Accepted Answer

A)  decrease in short-run aggregate supply, so output returns to its initial level but the price level rises. 
B)  decrease in short-run aggregate supply, so output increases and the price level rises. 
C)  decrease in short-run aggregate supply, so output returns to its initial level and the price level falls. 
D)  increase in short-run aggregate supply, so output increases and the price level rises. 
A)  decrease in short-run aggregate supply, so output returns to its initial level but the price level rises. 
B)  decrease in short-run aggregate supply, so output increases and the price level rises. 
C)  decrease in short-run aggregate supply, so output returns to its initial level and the price level falls. 
D)  increase in short-run aggregate supply, so output increases and the price level rises.

Modern mainstream macroeconomists agree with the monetarists that

In the real-business-cycle theory,

Economist Milton Friedman is most closely associated with

The real-business-cycle theory

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will occur.

The velocity of money measures the

From a rational expectations perspective, an easy money policy is likely to be completely

The rational expectations perspective suggests that

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

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary policy and their criticisms of policy rules.

Mainstream macroeconomics has embraced the

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

In new classical economics, the change in output caused by a "price-level surprise"

According to real-business-cycle theory,

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

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

Modern mainstream macroeconomists agree with the monetarists that

In the real-business-cycle theory,

Economist Milton Friedman is most closely associated with

The real-business-cycle theory

If the money supply growth is set at a slower pace than the growth of real GDP, then inﬂation will occur.

The velocity of money measures the

From a rational expectations perspective, an easy money policy is likely to be completely

The rational expectations perspective suggests that

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

From a monetarist perspective, an expansionary ﬁscal policy's effect on aggregate demand would be offset by

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of

Explain the mainstream economists' justiﬁcation for the use of discretionary ﬁscal and monetary policy and their criticisms of policy rules.

Mainstream macroeconomics has embraced the

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n)

In new classical economics, the change in output caused by a "price-level surprise"

According to real-business-cycle theory,

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

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