Question 1

Monetarists think that the government:

Accepted Answer

A)  should take an active role in the economy. 
B)  should change the money supply growth rate regularly to achieve low inflation. 
C)  should actively intervene in the economy, but only by decreasing the fiscal expenditure. 
D)  should intervene in the economy as little as possible. 
E)  should consciously set out to achieve full employment. 
A)  should take an active role in the economy. 
B)  should change the money supply growth rate regularly to achieve low inflation. 
C)  should actively intervene in the economy, but only by decreasing the fiscal expenditure. 
D)  should intervene in the economy as little as possible. 
E)  should consciously set out to achieve full employment.

Question 2

Assume that workers have perfect information about changes in inflation. Which of the following statements is true in this context?

Accepted Answer

A)  Wage rates will not adjust immediately to the price level on account of the fixed contracts. 
B)  The aggregate supply curve of the economy will become perfectly elastic. 
C)  The aggregate supply curve will shift to the right. 
D)  Nominal wage rates will always exceed the real wage rate. 
E)  The economy will continue to produce at the potential level of real GDP. 
A)  Wage rates will not adjust immediately to the price level on account of the fixed contracts. 
B)  The aggregate supply curve of the economy will become perfectly elastic. 
C)  The aggregate supply curve will shift to the right. 
D)  Nominal wage rates will always exceed the real wage rate. 
E)  The economy will continue to produce at the potential level of real GDP.

Question 3

What is the main difference between new Keynesian economics and monetarists?

Accepted Answer

A)  Monetarists support a fixed-price model, whereas new Keynesians believe that prices fluctuate. 
B)  Monetarists reject the idea that government intervention can stabilize the economy, whereas new Keynesians support this notion. 
C)  Monetarists believe that the aggregate supply curve is always vertical, whereas new Keynesians believe that the aggregate supply curve is always horizontal. 
D)  Monetarists believe that an increase in the money supply changes real GDP instantaneously, whereas new Keynesians assume that economic policy operates with a long and variable lag. 
E)  Monetarists believe that deficit spending helps stimulate economic growth, whereas new Keynesians advocate a balanced budget. 
A)  Monetarists support a fixed-price model, whereas new Keynesians believe that prices fluctuate. 
B)  Monetarists reject the idea that government intervention can stabilize the economy, whereas new Keynesians support this notion. 
C)  Monetarists believe that the aggregate supply curve is always vertical, whereas new Keynesians believe that the aggregate supply curve is always horizontal. 
D)  Monetarists believe that an increase in the money supply changes real GDP instantaneously, whereas new Keynesians assume that economic policy operates with a long and variable lag. 
E)  Monetarists believe that deficit spending helps stimulate economic growth, whereas new Keynesians advocate a balanced budget.

Question 4

According to the new classical school, if macroeconomic policy is perfectly expected, then the aggregate supply curve and the Phillips curve must be vertical in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following economic theories takes into account the rational expectations of people in the economy?

Accepted Answer

A)  Traditional Keynesian economic theory 
B)  Monetarist economic theory 
C)  New classical economic theory 
D)  Classical economic theory 
E)  New Keynesian economic theory 
A)  Traditional Keynesian economic theory 
B)  Monetarist economic theory 
C)  New classical economic theory 
D)  Classical economic theory 
E)  New Keynesian economic theory

Question 6

New classical economists contend that an unexpected increase in the money supply will:

Accepted Answer

A)  increase the unemployment rate in the short run. 
B)  reduce the unemployment rate in the short run. 
C)  cause no short-run change in the unemployment rate. 
D)  reduce the unemployment rate in the long run. 
E)  increase the unemployment rate in the long run. 
A)  increase the unemployment rate in the short run. 
B)  reduce the unemployment rate in the short run. 
C)  cause no short-run change in the unemployment rate. 
D)  reduce the unemployment rate in the long run. 
E)  increase the unemployment rate in the long run.

Question 7

The figure given below shows the supply curves with different slopes.
Figure 15.1
  
-Refer to Figure 15.1. Which of the following supply curves represents the supply curve in the simple Keynesian model?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  S4 
E)  S5 
A)  S1 
B)  S2 
C)  S3 
D)  S4 
E)  S5

Question 8

The economic theory that suggested an alternative to the rising unemployment and inflation that the static Phillips curve analysis could not explain was the:

Accepted Answer

A)  new classical economic theory. 
B)  monetarist economic theory. 
C)  new Keynesian economic theory. 
D)  classical economic theory. 
E)  traditional Keynesian economic theory. 
A)  new classical economic theory. 
B)  monetarist economic theory. 
C)  new Keynesian economic theory. 
D)  classical economic theory. 
E)  traditional Keynesian economic theory.

Question 9

Monetarists believe that in the short run:

Accepted Answer

A)  the natural rate of unemployment cannot be changed. 
B)  expansionary monetary policy is ineffective in raising real GDP. 
C)  a change in the money supply is fully reflected in a change in the interest level. 
D)  contractionary monetary policy will decrease unemployment. 
E)  there is a tradeoff between unemployment and inflation. 
A)  the natural rate of unemployment cannot be changed. 
B)  expansionary monetary policy is ineffective in raising real GDP. 
C)  a change in the money supply is fully reflected in a change in the interest level. 
D)  contractionary monetary policy will decrease unemployment. 
E)  there is a tradeoff between unemployment and inflation.

Question 10

The time it takes for a particular monetary policy to change income is called the _____.

Accepted Answer

A)  recognition lag 
B)  data lag 
C)  reaction lag 
D)  effect lag 
E)  action lag 
A)  recognition lag 
B)  data lag 
C)  reaction lag 
D)  effect lag 
E)  action lag

Question 11

According to classical economics:

Accepted Answer

A)  real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply. 
B)  both real GDP and price level are determined by aggregate demand. 
C)  both real GDP and price level are determined by aggregate supply. 
D)  real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand. 
E)  price level cannot be changed as prices and wages are perfectly rigid. 
A)  real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply. 
B)  both real GDP and price level are determined by aggregate demand. 
C)  both real GDP and price level are determined by aggregate supply. 
D)  real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand. 
E)  price level cannot be changed as prices and wages are perfectly rigid.

Question 12

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

Accepted Answer

A) True 
 B)False

Question 13

Monetarists argue that government actions, particularly monetary policy, worsens the negative aspects of the business cycle.

Accepted Answer

A) True 
 B)False

Question 14

The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2
  
-Refer to Figure 15.2. Assume that the economy is now at point B. If government officials announce and carry out a policy that will maintain the inflation rate at 15 percent, we would expect:

Accepted Answer

A)  the economy to move to point A. 
B)  the economy to remain at point B. 
C)  the economy to move to point C. 
D)  the economy to move to point D. 
E)  the economy to move to point E. 
A)  the economy to move to point A. 
B)  the economy to remain at point B. 
C)  the economy to move to point C. 
D)  the economy to move to point D. 
E)  the economy to move to point E.

Question 15

If the traditional Keynesian views turn out to be accurate, an increase in government spending would:

Accepted Answer

A)  increase the price level. 
B)  decrease the investment. 
C)  increase the equilibrium level of real GDP. 
D)  decrease the consumption. 
E)  decrease the money supply. 
A)  increase the price level. 
B)  decrease the investment. 
C)  increase the equilibrium level of real GDP. 
D)  decrease the consumption. 
E)  decrease the money supply.

Question 16

The main reason why the traditional classical school ceased to be widely accepted was that:

Accepted Answer

A)  it did not reflect the realities of the modern economy. 
B)  when Keynes received the Nobel Prize, the academic establishment started believing his ideas. 
C)  it could not explain the persistence of the high levels of unemployment seen during the Great Depression. 
D)  it was too abstract to be completely understood. 
E)  it could not explain the relationship between inflation and unemployment. 
A)  it did not reflect the realities of the modern economy. 
B)  when Keynes received the Nobel Prize, the academic establishment started believing his ideas. 
C)  it could not explain the persistence of the high levels of unemployment seen during the Great Depression. 
D)  it was too abstract to be completely understood. 
E)  it could not explain the relationship between inflation and unemployment.

Question 17

In the early 1960s, monetary theory rather than Keynesian theory dominated economics.

Accepted Answer

A) True 
 B)False

Question 18

Milton Friedman is widely considered to be the father of monetarism.

Accepted Answer

A) True 
 B)False

Question 19

In traditional Keynesian economics:

Accepted Answer

A)  the aggregate supply curve is vertical. 
B)  the aggregate supply curve is horizontal. 
C)  the aggregate supply curve is upward-sloping. 
D)  the aggregate demand curve is horizontal. 
E)  the aggregate demand curve is vertical. 
A)  the aggregate supply curve is vertical. 
B)  the aggregate supply curve is horizontal. 
C)  the aggregate supply curve is upward-sloping. 
D)  the aggregate demand curve is horizontal. 
E)  the aggregate demand curve is vertical.

Question 20

Monetarists believe that changes in monetary policy would have:

Accepted Answer

A)  only short-term effect on the price level. 
B)  only short-term effect on real GDP. 
C)  only long-term effect on real GDP. 
D)  no effect on price level and real GDP. 
E)  both short-term and long term effect on real GDP. 
A)  only short-term effect on the price level. 
B)  only short-term effect on real GDP. 
C)  only long-term effect on real GDP. 
D)  no effect on price level and real GDP. 
E)  both short-term and long term effect on real GDP.

Monetarists think that the government:

Assume that workers have perfect information about changes in inflation. Which of the following statements is true in this context?

What is the main difference between new Keynesian economics and monetarists?

According to the new classical school, if macroeconomic policy is perfectly expected, then the aggregate supply curve and the Phillips curve must be vertical in both the short run and the long run.

Which of the following economic theories takes into account the rational expectations of people in the economy?

New classical economists contend that an unexpected increase in the money supply will:

The figure given below shows the supply curves with different slopes. Figure 15.1 -Refer to Figure 15.1. Which of the following supply curves represents the supply curve in the simple Keynesian model?

The economic theory that suggested an alternative to the rising unemployment and inflation that the static Phillips curve analysis could not explain was the:

Monetarists believe that in the short run:

The time it takes for a particular monetary policy to change income is called the _____.

According to classical economics:

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

Monetarists argue that government actions, particularly monetary policy, worsens the negative aspects of the business cycle.

If the traditional Keynesian views turn out to be accurate, an increase in government spending would:

The main reason why the traditional classical school ceased to be widely accepted was that:

In the early 1960s, monetary theory rather than Keynesian theory dominated economics.

Milton Friedman is widely considered to be the father of monetarism.

In traditional Keynesian economics:

Monetarists believe that changes in monetary policy would have:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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Exam 15: Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Monetarists think that the government:

Assume that workers have perfect information about changes in inflation. Which of the following statements is true in this context?

What is the main difference between new Keynesian economics and monetarists?

According to the new classical school, if macroeconomic policy is perfectly expected, then the aggregate supply curve and the Phillips curve must be vertical in both the short run and the long run.

Which of the following economic theories takes into account the rational expectations of people in the economy?

New classical economists contend that an unexpected increase in the money supply will:

The figure given below shows the supply curves with different slopes. Figure 15.1 -Refer to Figure 15.1. Which of the following supply curves represents the supply curve in the simple Keynesian model?

The economic theory that suggested an alternative to the rising unemployment and inflation that the static Phillips curve analysis could not explain was the:

Monetarists believe that in the short run:

The time it takes for a particular monetary policy to change income is called the _____.

According to classical economics:

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

Monetarists argue that government actions, particularly monetary policy, worsens the negative aspects of the business cycle.

If the traditional Keynesian views turn out to be accurate, an increase in government spending would:

The main reason why the traditional classical school ceased to be widely accepted was that:

In the early 1960s, monetary theory rather than Keynesian theory dominated economics.

Milton Friedman is widely considered to be the father of monetarism.

In traditional Keynesian economics:

Monetarists believe that changes in monetary policy would have:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters