Question 1

Monetarists believe

Accepted Answer

A) the economy is stable. 
B) the economy is rigid. 
C) the economy does not equilibrate quickly. 
D) the economy is unstable. 
A) the economy is stable. 
B) the economy is rigid. 
C) the economy does not equilibrate quickly. 
D) the economy is unstable.

Question 2

Keynesian economics includes the idea that

Accepted Answer

A) economic policies are ineffective. 
B) the economy is basically stable. 
C) prices adjust to clear the markets. 
D) labor markets don't always clear due to wage rigidities. 
A) economic policies are ineffective. 
B) the economy is basically stable. 
C) prices adjust to clear the markets. 
D) labor markets don't always clear due to wage rigidities.

Question 3

Expectations are hard to test even though economists know the model the public uses when forming expectations.

Accepted Answer

A) True 
 B)False

Question 4

If income is $30 billion,the price level is 3,and the stock of money is $18 billion,what is the velocity of money?

Accepted Answer

A) 1.4 
B) 1.8 
C) 5 
D) 180 
A) 1.4 
B) 1.8 
C) 5 
D) 180

Question 5

The rational-expectations hypothesis suggests that errors in forecasting future inflation rates are due to

Accepted Answer

A) random,unpredictable events. 
B) the fact that people assume that the current inflation rate will continue into the future. 
C) the fact that people consistently underestimate future inflation. 
D) the fact that people consistently overestimate future inflation. 
A) random,unpredictable events. 
B) the fact that people assume that the current inflation rate will continue into the future. 
C) the fact that people consistently underestimate future inflation. 
D) the fact that people consistently overestimate future inflation.

Question 6

The Lucas supply function incorporates the idea that output depends on the difference between the actual price level and the expected price level.

Accepted Answer

A) True 
 B)False

Question 7

The velocity of money is the number of times a dollar bill changes hands,on average,during a year.

Accepted Answer

A) True 
 B)False

Question 8

According to the real business cycle theory,________ are responsible for economic growth.

Accepted Answer

A) expansionary fiscal and monetary policies 
B) positive shifts in the AD curve 
C) trade and income policies 
D) positive shifts in the AS curve 
A) expansionary fiscal and monetary policies 
B) positive shifts in the AD curve 
C) trade and income policies 
D) positive shifts in the AS curve

Question 9

According to the Laffer curve,

Accepted Answer

A) an increase in tax rates will always increase tax revenues. 
B) a decrease in tax rates will always decrease tax revenues. 
C) a decrease in tax rates will always increases tax revenues. 
D) an increase in tax rates will have an inconsistent effect on tax revenues. 
A) an increase in tax rates will always increase tax revenues. 
B) a decrease in tax rates will always decrease tax revenues. 
C) a decrease in tax rates will always increases tax revenues. 
D) an increase in tax rates will have an inconsistent effect on tax revenues.

Question 10

Which of the following is NOT one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

Accepted Answer

A) The rational-expectations assumption is difficult to test. 
B) Macroeconomic models differ in ways that are hard to standardize for. 
C) Macroeconomic models cannot be expressed in mathematical terms. 
D) The amount of data available is fairly small. 
A) The rational-expectations assumption is difficult to test. 
B) Macroeconomic models differ in ways that are hard to standardize for. 
C) Macroeconomic models cannot be expressed in mathematical terms. 
D) The amount of data available is fairly small.

Question 11

If nominal GDP is $500 billion,velocity is $500 billion divided by the stock of money.

Accepted Answer

A) True 
 B)False

Question 12

According to the Lucas supply function,the economy will produce more output when

Accepted Answer

A) prices are unexpectedly higher than when prices are at their expected level. 
B) wages are below the expected level. 
C) prices are unexpectedly lower than when prices are at their expected level. 
D) prices are exactly equal to the expected level. 
A) prices are unexpectedly higher than when prices are at their expected level. 
B) wages are below the expected level. 
C) prices are unexpectedly lower than when prices are at their expected level. 
D) prices are exactly equal to the expected level.

Question 13

According to the Lucas supply function,workers who experience a positive price surprise will work more hours when

Accepted Answer

A) there is no substitution effect from a positive price surprise. 
B) there is no income effect from a positive price surprise. 
C) the substitution effect dominates the income effect. 
D) the income effect dominates the substitution effect. 
A) there is no substitution effect from a positive price surprise. 
B) there is no income effect from a positive price surprise. 
C) the substitution effect dominates the income effect. 
D) the income effect dominates the substitution effect.

Question 14

Velocity will be constant if the demand for money with respect to the interest rate is

Accepted Answer

A) unitary elastic. 
B) perfectly inelastic. 
C) perfectly elastic. 
D) elastic,but not perfectly elastic. 
A) unitary elastic. 
B) perfectly inelastic. 
C) perfectly elastic. 
D) elastic,but not perfectly elastic.

Question 15

New Keynesian economics assumes rational expectations,flexible wages,and flexible prices.

Accepted Answer

A) True 
 B)False

Question 16

If nominal GDP is $400 billion and the money supply is $50 billion,the velocity of money is

Accepted Answer

A) 0.125. 
B) 8. 
C) 12. 
D) 20. 
A) 0.125. 
B) 8. 
C) 12. 
D) 20.

Question 17

The velocity of money is

Accepted Answer

A) the number of times a dollar bill exchanges hands in a year. 
B) the ratio of deposits to money supply. 
C) the number of times the Fed increases money supply in a year. 
D) the relationship between money supply and money demand. 
A) the number of times a dollar bill exchanges hands in a year. 
B) the ratio of deposits to money supply. 
C) the number of times the Fed increases money supply in a year. 
D) the relationship between money supply and money demand.

Question 18

Who wrote the General Theory of Employment,Interest,and Money?

Accepted Answer

A) Adam Smith 
B) David Ricardo 
C) Milton Friedman 
D) John Maynard Keynes 
A) Adam Smith 
B) David Ricardo 
C) Milton Friedman 
D) John Maynard Keynes

Question 19

According to the Laffer curve,as tax rates increase,tax revenues

Accepted Answer

A) initially increase and then decrease. 
B) decrease continuously. 
C) initially decrease and then increase. 
D) rise continuously. 
A) initially increase and then decrease. 
B) decrease continuously. 
C) initially decrease and then increase. 
D) rise continuously.

Question 20

A problem with comparing macroeconomic models is that

Accepted Answer

A) people may change how they react when economic policies are changed. 
B) macroeconomic models do not predict the same outcomes from policies. 
C) macroeconomic models cannot be expressed in mathematical terms. 
D) macroeconomic models must meet government standards for uniformity. 
A) people may change how they react when economic policies are changed. 
B) macroeconomic models do not predict the same outcomes from policies. 
C) macroeconomic models cannot be expressed in mathematical terms. 
D) macroeconomic models must meet government standards for uniformity.

Exam 18: Alternative Views in Macroeconomics

Monetarists believe

Keynesian economics includes the idea that

Expectations are hard to test even though economists know the model the public uses when forming expectations.

If income is $30 billion,the price level is 3,and the stock of money is $18 billion,what is the velocity of money?

The rational-expectations hypothesis suggests that errors in forecasting future inflation rates are due to

The Lucas supply function incorporates the idea that output depends on the difference between the actual price level and the expected price level.

The velocity of money is the number of times a dollar bill changes hands,on average,during a year.

According to the real business cycle theory,________ are responsible for economic growth.

According to the Laffer curve,

Which of the following is NOT one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

If nominal GDP is $500 billion,velocity is $500 billion divided by the stock of money.

According to the Lucas supply function,the economy will produce more output when

According to the Lucas supply function,workers who experience a positive price surprise will work more hours when

Velocity will be constant if the demand for money with respect to the interest rate is

New Keynesian economics assumes rational expectations,flexible wages,and flexible prices.

If nominal GDP is $400 billion and the money supply is $50 billion,the velocity of money is

The velocity of money is

Who wrote the General Theory of Employment,Interest,and Money?

According to the Laffer curve,as tax rates increase,tax revenues

A problem with comparing macroeconomic models is that

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

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