Question 1

The equation underlying the mainstream view of macroeconomics is:

Accepted Answer

A)  MV = PQ. 
B)  Ca + Ig + Xn + G = GDP. 
C)  S = a - bY. 
D)  GDP = P × Q. 
A)  MV = PQ. 
B)  Ca + Ig + Xn + G = GDP. 
C)  S = a - bY. 
D)  GDP = P × Q. B

Question 2

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. B

Question 3

Which of the following pairs help explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

Accepted Answer

A)  Theory of compensation wage differentials;theory of derived demand for labor. 
B)  Efficiency wage theory;insider-outsider theory. 
C)  Insider-outsider theory;principle-agent problem. 
D)  Externalities;efficiency wage theory. 
A)  Theory of compensation wage differentials;theory of derived demand for labor. 
B)  Efficiency wage theory;insider-outsider theory. 
C)  Insider-outsider theory;principle-agent problem. 
D)  Externalities;efficiency wage theory. B

Question 4

According to monetarists:

Accepted Answer

A)  changes in the money supply are the primary cause of changes in the price level. 
B)  an expansionary fiscal policy will lower interest rates and overstimulate the economy. 
C)  changes in the velocity of money are more important than changes in the money supply in causing the level of economic activity to change. 
D)  the supply of money changes in response to changes in the levels of real output and prices. 
A)  changes in the money supply are the primary cause of changes in the price level. 
B)  an expansionary fiscal policy will lower interest rates and overstimulate the economy. 
C)  changes in the velocity of money are more important than changes in the money supply in causing the level of economic activity to change. 
D)  the supply of money changes in response to changes in the levels of real output and prices.

Question 5

If M is $400,P is $4,and Q is 300,then V must be:

Accepted Answer

A)  1.33. 
B)  3. 
C)  5.33. 
D)  100. 
A)  1.33. 
B)  3. 
C)  5.33. 
D)  100.

Question 6

The real-business cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor.

Accepted Answer

A) True 
 B)False

Question 7

According to the Taylor rule,if inflation rises 1 percent above a target rate of 2 percent,the Fed should raise the federal funds rate,relative to the current rate of inflation,by:

Accepted Answer

A)  0.5 percentage point. 
B)  1 percentage point. 
C)  1.5 percentage points. 
D)  2 percentage points. 
A)  0.5 percentage point. 
B)  1 percentage point. 
C)  1.5 percentage points. 
D)  2 percentage points.

Question 8

Monetarists and rational expectations theorists generally agree that:

Accepted Answer

A)  the Federal Reserve should adhere to a monetary rule. 
B)  the rate of interest and the price of bonds are positively or directly related. 
C)  the money supply cannot be measured and therefore cannot be controlled by the Federal Reserve. 
D)  prices and wages are inflexible downward. 
A)  the Federal Reserve should adhere to a monetary rule. 
B)  the rate of interest and the price of bonds are positively or directly related. 
C)  the money supply cannot be measured and therefore cannot be controlled by the Federal Reserve. 
D)  prices and wages are inflexible downward.

Question 9

The crowding-out effect refers to the possibility that:

Accepted Answer

A)  when used simultaneously,expansionary fiscal and monetary policies are counterproductive. 
B)  the asset demand for money varies inversely with the interest rate. 
C)  deficit financing will increase the interest rate and reduce investment. 
D)  an increase in the supply of money will result in a decline in velocity. 
A)  when used simultaneously,expansionary fiscal and monetary policies are counterproductive. 
B)  the asset demand for money varies inversely with the interest rate. 
C)  deficit financing will increase the interest rate and reduce investment. 
D)  an increase in the supply of money will result in a decline in velocity.

Question 10

If firms are paying efficiency wages,they:

Accepted Answer

A)  may be reluctant to increase nominal wages when aggregate demand increases. 
B)  are highly vulnerable to import competition. 
C)  may be targeted for takeover by firms paying market wages. 
D)  may be reluctant to cut wages when aggregate demand declines. 
A)  may be reluctant to increase nominal wages when aggregate demand increases. 
B)  are highly vulnerable to import competition. 
C)  may be targeted for takeover by firms paying market wages. 
D)  may be reluctant to cut wages when aggregate demand declines.

Question 11

The view that inappropriate monetary policy was the main reason for the depth of the Great Depression in the United States is most closely associated with:

Accepted Answer

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

Question 12

Rational expectations theory implies that the:

Accepted Answer

A)  aggregate demand curve is vertical. 
B)  long-run aggregate supply curve is vertical. 
C)  long-run aggregate supply curve is horizontal. 
D)  long-run aggregate supply curve is quite flat. 
A)  aggregate demand curve is vertical. 
B)  long-run aggregate supply curve is vertical. 
C)  long-run aggregate supply curve is horizontal. 
D)  long-run aggregate supply curve is quite flat.

Question 13

A coordination failure:

Accepted Answer

A)  is a real-business-cycle event. 
B)  is a self-fulfilling prophesy. 
C)  results from the spending-income multiplier. 
D)  is a direct outcome of inappropriate fiscal policy. 
A)  is a real-business-cycle event. 
B)  is a self-fulfilling prophesy. 
C)  results from the spending-income multiplier. 
D)  is a direct outcome of inappropriate fiscal policy.

Question 14

The velocity of money is equal to:

Accepted Answer

A)  1/MPS. 
B)  nominal GDP/M. 
C)  1/reserve ratio. 
D)  nominal GDP/P. 
A)  1/MPS. 
B)  nominal GDP/M. 
C)  1/reserve ratio. 
D)  nominal GDP/P.

Question 15

Suppose aggregate demand in the economy sharply declines.Mainstream economists say that the price level (at least for a time)will _______ and real output will _________.

Accepted Answer

A)  decrease;remain constant 
B)  increase;remain constant 
C)  remain constant;decrease 
D)  remain constant;increase 
A)  decrease;remain constant 
B)  increase;remain constant 
C)  remain constant;decrease 
D)  remain constant;increase

Question 16

Suppose laid-off workers and other qualified unemployed workers offer to work for less than the wages being paid existing employed workers,but employers do not hire these workers for fear that existing workers will refuse to cooperate with them.This situation best describes the:

Accepted Answer

A)  efficiency wage theory. 
B)  theory of compensating wage differentials. 
C)  insider-outsider theory. 
D)  rational expectations theory. 
A)  efficiency wage theory. 
B)  theory of compensating wage differentials. 
C)  insider-outsider theory. 
D)  rational expectations theory.

Question 17

Monetarists believe the private economy is inherently:

Accepted Answer

A)  unstable and the public sector should be small. 
B)  unstable and the public sector should be large. 
C)  stable but that the public sector should be large. 
D)  stable and that the government sector should be small. 
A)  unstable and the public sector should be small. 
B)  unstable and the public sector should be large. 
C)  stable but that the public sector should be large. 
D)  stable and that the government sector should be small.

Question 18

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 19

Mainstream economists contend that,as stabilization tools:

Accepted Answer

A)  discretionary fiscal policy is effective,but discretionary monetary policy is not. 
B)  discretionary monetary policy is effective,but discretionary fiscal policy is not. 
C)  both discretionary fiscal policy and discretionary monetary policy can be effective if appropriately used. 
D)  discretionary fiscal policy and discretionary monetary policy cause more instability than they cure. 
A)  discretionary fiscal policy is effective,but discretionary monetary policy is not. 
B)  discretionary monetary policy is effective,but discretionary fiscal policy is not. 
C)  both discretionary fiscal policy and discretionary monetary policy can be effective if appropriately used. 
D)  discretionary fiscal policy and discretionary monetary policy cause more instability than they cure.

Question 20

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.

Exam 38: Current Issues in Macro Theory and Policy

The equation underlying the mainstream view of macroeconomics is:

As monetarists view the equation of exchange:

Which of the following pairs help explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

According to monetarists:

If M is $400,P is $4,and Q is 300,then V must be:

The real-business cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor.

According to the Taylor rule,if inflation rises 1 percent above a target rate of 2 percent,the Fed should raise the federal funds rate,relative to the current rate of inflation,by:

Monetarists and rational expectations theorists generally agree that:

The crowding-out effect refers to the possibility that:

If firms are paying efficiency wages,they:

The view that inappropriate monetary policy was the main reason for the depth of the Great Depression in the United States is most closely associated with:

Rational expectations theory implies that the:

A coordination failure:

The velocity of money is equal to:

Suppose aggregate demand in the economy sharply declines.Mainstream economists say that the price level (at least for a time)will _______ and real output will _________.

Suppose laid-off workers and other qualified unemployed workers offer to work for less than the wages being paid existing employed workers,but employers do not hire these workers for fear that existing workers will refuse to cooperate with them.This situation best describes the:

Monetarists believe the private economy is inherently:

According to real-business-cycle theory:

Mainstream economists contend that,as stabilization tools:

The velocity of money measures the:

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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Suppose aggregate demand in the economy sharply declines.Mainstream economists say that the price level (at least for a time)will _ and real output will ___.