Question 1

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Accepted Answer

A)  mainstream economists 
B)  supply-side economists 
C)  rational expectations economists 
D)  functional ﬁnance economists 
A)  mainstream economists 
B)  supply-side economists 
C)  rational expectations economists 
D)  functional ﬁnance economists

Question 2

Describe two basic differences between the mainstream and monetarist economic theories.

Accepted Answer

The mainstream view is that instability

Question 3

Rational expectations theory suggests that people make consistent forecasting errors regarding the
effects of policy.

Accepted Answer

A) True 
 B)False

Question 4

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Accepted Answer

A)  circulation period of money must be one-fourth of a year. 
B)  velocity of money is 4. 
C)  average price per ﬁnal good sold is $3. 
D)  velocity of money is 3. 
A)  circulation period of money must be one-fourth of a year. 
B)  velocity of money is 4. 
C)  average price per ﬁnal good sold is $3. 
D)  velocity of money is 3.

Question 5

Accepted Answer

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

Question 6

Adherents of the traditional monetary rule advocate that the

Accepted Answer

A)  functional ﬁnance approach to ﬁscal policy be adopted. 
B)  money supply should be increased by a constant rate year after year. 
C)  money supply should be reduced during inﬂation and increased during recession. 
D)  money supply should be increased during inﬂation and reduced during recession. 
A)  functional ﬁnance approach to ﬁscal policy be adopted. 
B)  money supply should be increased by a constant rate year after year. 
C)  money supply should be reduced during inﬂation and increased during recession. 
D)  money supply should be increased during inﬂation and reduced during recession.

Question 7

In real-business-cycle theory, changes in the

Accepted Answer

A)  demand for money respond to changes in the supply of money. 
B)  supply of money respond to changes in the demand for money. 
C)  demand for money respond to changes in eﬃciency wages. 
D)  supply of money respond to changes in coordination failures. 
A)  demand for money respond to changes in the supply of money. 
B)  supply of money respond to changes in the demand for money. 
C)  demand for money respond to changes in eﬃciency wages. 
D)  supply of money respond to changes in coordination failures.

Question 8

How can paying workers an above-market wage result in greater eﬃciency? What are the
implications for the ﬂexibility of wages?

Accepted Answer

An above market wage can result in great

Question 9

In comparing monetarism and rational expectations theory, we ﬁnd that

Accepted Answer

A)  both favor policy rules and for the same reasons. 
B)  both favor policy rules, but for different reasons. 
C)  both favor discretionary policies. 
D)  the former favors discretionary policy, while the latter favors policy rules. 
A)  both favor policy rules and for the same reasons. 
B)  both favor policy rules, but for different reasons. 
C)  both favor discretionary policies. 
D)  the former favors discretionary policy, while the latter favors policy rules.

Question 10

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)  is accompanied by an offsetting decline in fringe beneﬁts. 
B)  increases supervision costs. 
C)  reduces job turnover. 
D)  increases worker absenteeism. 
A)  is accompanied by an offsetting decline in fringe beneﬁts. 
B)  increases supervision costs. 
C)  reduces job turnover. 
D)  increases worker absenteeism.

Question 11

According to monetarists, the Great Depression in the United States largely resulted from

Accepted Answer

A)  contractionary ﬁscal policy. 
B)  excessive imports relative to exports. 
C)  signiﬁcant changes in technology and resource availability. 
D)  inappropriate monetary policy. 
A)  contractionary ﬁscal policy. 
B)  excessive imports relative to exports. 
C)  signiﬁcant changes in technology and resource availability. 
D)  inappropriate monetary policy.

Question 12

The equation of exchange is

Accepted Answer

A)  AS = AD. 
B)  Saving = Income - Spending. 
C)  MV = PQ. 
D)  $A D = C + I _ { g } + G + X _ { n }$ 
A)  AS = AD. 
B)  Saving = Income - Spending. 
C)  MV = PQ. 
D)  $A D = C + I _ { g } + G + X _ { n }$

Question 13

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level
results in no change in real output.

Accepted Answer

A) True 
 B)False

Question 14

Explain the new classical view of self-correction in the economy.

Accepted Answer

New classical economics contends that wh

Question 15

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

Accepted Answer

A) True 
 B)False

Question 16

According to mainstream macroeconomists, U.S. macro instability has resulted from

Accepted Answer

A)  investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks. 
B)  adherence by the Fed to a monetary rule. 
C)  government's attempts to balance its budget. 
D)  wide ﬂuctuations in net exports. 
A)  investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks. 
B)  adherence by the Fed to a monetary rule. 
C)  government's attempts to balance its budget. 
D)  wide ﬂuctuations in net exports.

Question 17

Monetarists believe that

Accepted Answer

A)  prices and wages are inﬂexible or sticky. 
B)  both product and resource markets are monopolistic. 
C)  velocity is relatively stable. 
D)  the economy is more stable when active ﬁscal and monetary policy are used. 
A)  prices and wages are inﬂexible or sticky. 
B)  both product and resource markets are monopolistic. 
C)  velocity is relatively stable. 
D)  the economy is more stable when active ﬁscal and monetary policy are used.

Question 18

The idea of coordination failures suggests the possibility of less than desirable price-level and real-
output equilibriums in the economy.

Accepted Answer

A) True 
 B)False

Question 19

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 anticipated decrease in aggregate demand to AD
$A D _ { 2 }$ , then, according to rational
Expectations theory, the path for adjustment runs from point

Accepted Answer

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

Question 20

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _____________ and real output will ____________.

Accepted Answer

A)  fall; remain constant 
B)  fall; fall 
C)  remain constant; fall 
D)  remain constant; rise 
A)  fall; remain constant 
B)  fall; fall 
C)  remain constant; fall 
D)  remain constant; rise

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Describe two basic differences between the mainstream and monetarist economic theories.

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Adherents of the traditional monetary rule advocate that the

In real-business-cycle theory, changes in the

How can paying workers an above-market wage result in greater eﬃciency? What are the implications for the ﬂexibility of wages?

In comparing monetarism and rational expectations theory, we ﬁnd that

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

According to monetarists, the Great Depression in the United States largely resulted from

The equation of exchange is

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Explain the new classical view of self-correction in the economy.

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

According to mainstream macroeconomists, U.S. macro instability has resulted from

Monetarists believe that

The idea of coordination failures suggests the possibility of less than desirable price-level and real- output equilibriums in the economy.

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _ and real output will .

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 groups of economists is most likely to favor annually balanced federal budgets?

Describe two basic differences between the mainstream and monetarist economic theories.

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Adherents of the traditional monetary rule advocate that the

In real-business-cycle theory, changes in the

How can paying workers an above-market wage result in greater eﬃciency? What are the implications for the ﬂexibility of wages?

In comparing monetarism and rational expectations theory, we ﬁnd that

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

According to monetarists, the Great Depression in the United States largely resulted from

The equation of exchange is

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Explain the new classical view of self-correction in the economy.

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

According to mainstream macroeconomists, U.S. macro instability has resulted from

Monetarists believe that

The idea of coordination failures suggests the possibility of less than desirable price-level and real- output equilibriums in the economy.

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _____________ and real output will ____________.

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

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _ and real output will .