Question 1

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Accepted Answer

A) True 
 B)False

Question 2

According to the Laffer curve,an increase in the tax rate may decrease tax revenues.

Accepted Answer

A) True 
 B)False

Question 3

The rational-expectations hypothesis implies that there is no need for government stabilization policies.

Accepted Answer

A) True 
 B)False

Question 4

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

Accepted Answer

A) increasing; increasing 
B) decreasing; increasing 
C) increasing; decreasing 
D) none of the above 
A) increasing; increasing 
B) decreasing; increasing 
C) increasing; decreasing 
D) none of the above

Question 5

If real output is $25 billion,the price level is 5,and velocity is 5,what is the stock of money?

Accepted Answer

A) $1 billion 
B) $10 billion 
C) $25 billion 
D) $625 billion 
A) $1 billion 
B) $10 billion 
C) $25 billion 
D) $625 billion

Question 6

According to the rational expectations hypothesis,unemployment

Accepted Answer

A) does not exist in the short run. 
B) may exist,and when it does,it stays for a long period of time. 
C) may exist,and if it does,it will be temporary. 
D) only exists in the long run. 
A) does not exist in the short run. 
B) may exist,and when it does,it stays for a long period of time. 
C) may exist,and if it does,it will be temporary. 
D) only exists in the long run.

Question 7

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

Accepted Answer

A) what they perceive past inflation to have been. 
B) equal to the actual estimates of past inflation made by the government. 
C) directly related to the interest rate. 
D) relatively unpredictable. 
A) what they perceive past inflation to have been. 
B) equal to the actual estimates of past inflation made by the government. 
C) directly related to the interest rate. 
D) relatively unpredictable.

Question 8

The leading spokesman for monetarism over the last few decades was

Accepted Answer

A) John Kenneth Galbraith. 
B) Milton Friedman. 
C) Robert E.Lucas. 
D) Paul Samuelson. 
A) John Kenneth Galbraith. 
B) Milton Friedman. 
C) Robert E.Lucas. 
D) Paul Samuelson.

Question 9

The Lucas supply function,in combination with the assumption that expectations are rational,implies that an announced monetary policy change will lead to

Accepted Answer

A) a positive price surprise. 
B) no price surprise. 
C) a negative price surprise. 
D) a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy. 
A) a positive price surprise. 
B) no price surprise. 
C) a negative price surprise. 
D) a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy.

Question 10

Keynesians believe that the economy will never will reach a full employment equilibrium.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following represents the Lucas supply function?

Accepted Answer

A) Y = f(Pe - P) 
B) Y = f(Pe + P) 
C) Y = f(P + Pe) 
D) Y = f(P - Pe) 
A) Y = f(Pe - P) 
B) Y = f(Pe + P) 
C) Y = f(P + Pe) 
D) Y = f(P - Pe)

Question 12

If income is $20 billion,the price level is 5,and the stock of money is $10 billion,what is the income velocity of money?

Accepted Answer

A) 0.4 
B) 2.5 
C) 4 
D) 10 
A) 0.4 
B) 2.5 
C) 4 
D) 10

Question 13

If the demand for money depends on the interest rate,velocity is

Accepted Answer

A) not constant,and the quantity theory of money does hold. 
B) not constant,and the quantity theory of money does not hold. 
C) constant,and the quantity theory of money does not hold. 
D) constant,and the quantity theory of money does hold. 
A) not constant,and the quantity theory of money does hold. 
B) not constant,and the quantity theory of money does not hold. 
C) constant,and the quantity theory of money does not hold. 
D) constant,and the quantity theory of money does hold.

Question 14

Refer to the information provided in Figure 18.1 below to answer the questions that follow.
   Figure 18.1
-Refer to Figure 18.1.According to the monetarists,a recession can be caused when

Accepted Answer

A) AD1 shifts to the right. 
B) AD1 shifts to the left. 
C) AS1 shifts to the left. 
D) LRAS shifts to the left. 
A) AD1 shifts to the right. 
B) AD1 shifts to the left. 
C) AS1 shifts to the left. 
D) LRAS shifts to the left.

Question 15

Velocity is NOT constant if

Accepted Answer

A) the money supply does not depend on the interest rate. 
B) the supply of money depends on the interest rate. 
C) the price level increases as aggregate output increases. 
D) the demand for money depends on the interest rate. 
A) the money supply does not depend on the interest rate. 
B) the supply of money depends on the interest rate. 
C) the price level increases as aggregate output increases. 
D) the demand for money depends on the interest rate.

Question 16

Too much data is available to test macroeconomic models.

Accepted Answer

A) True 
 B)False

Question 17

Many economists challenged the idea of passive government involvement in the economy following the inflation of the 1970s and early 1980s,and the recessions of 1974-1975 and 1980-1982.

Accepted Answer

A) True 
 B)False

Question 18

A velocity of 4 means money stays with each owner for an average of 4 years.

Accepted Answer

A) True 
 B)False

Question 19

A velocity of ________ means money changes hands,on average,every 4 months.

Accepted Answer

A) 0.25 
B) 1.25 
C) 3 
D) 4 
A) 0.25 
B) 1.25 
C) 3 
D) 4

Question 20

Monetarists believe that real output is determined by

Accepted Answer

A) government spending. 
B) the rate of growth of the money supply. 
C) government planning. 
D) aggregate supply. 
A) government spending. 
B) the rate of growth of the money supply. 
C) government planning. 
D) aggregate supply.

Exam 18: Alternative Views in Macroeconomics

The Laffer curve shows the relationship between the tax rate and the inflation rate.

According to the Laffer curve,an increase in the tax rate may decrease tax revenues.

The rational-expectations hypothesis implies that there is no need for government stabilization policies.

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

If real output is $25 billion,the price level is 5,and velocity is 5,what is the stock of money?

According to the rational expectations hypothesis,unemployment

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

The leading spokesman for monetarism over the last few decades was

The Lucas supply function,in combination with the assumption that expectations are rational,implies that an announced monetary policy change will lead to

Keynesians believe that the economy will never will reach a full employment equilibrium.

Which of the following represents the Lucas supply function?

If income is $20 billion,the price level is 5,and the stock of money is $10 billion,what is the income velocity of money?

If the demand for money depends on the interest rate,velocity is

Refer to the information provided in Figure 18.1 below to answer the questions that follow. Figure 18.1 -Refer to Figure 18.1.According to the monetarists,a recession can be caused when

Velocity is NOT constant if

Too much data is available to test macroeconomic models.

Many economists challenged the idea of passive government involvement in the economy following the inflation of the 1970s and early 1980s,and the recessions of 1974-1975 and 1980-1982.

A velocity of 4 means money stays with each owner for an average of 4 years.

A velocity of ________ means money changes hands,on average,every 4 months.

Monetarists believe that real output is determined by

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand,supply,and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment,inflation,and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

The Money Supply and the Federal Reserve System

Money Demand and the Equilibrium Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Costs Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

International Trade, comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing and Transitional Economies

Filters

A monetarist would advocate money supply during recessions and money supply during periods of high inflation.