Question 1

According to the Lucas supply function,if the expected price level is larger than the actual price level

Accepted Answer

A) real output increases. 
B) real output decreases. 
C) nominal output increases. 
D) nominal output decreases. 
A) real output increases. 
B) real output decreases. 
C) nominal output increases. 
D) nominal output decreases.

Question 2

If firms have rational expectations and if they set prices and wages on this basis,then prices and wages

Accepted Answer

A) will always be at market-clearing levels. 
B) will,on average,be set at market-clearing levels. 
C) will always be above market-clearing levels. 
D) will never be set at market-clearing levels. 
A) will always be at market-clearing levels. 
B) will,on average,be set at market-clearing levels. 
C) will always be above market-clearing levels. 
D) will never be set at market-clearing levels.

Question 3

The Fed increases money supply.In this case,the time lag problem of monetary policy may

Accepted Answer

A) increase the velocity of money in the short run. 
B) increase real GDP in the short run. 
C) decrease the velocity of money in the short run. 
D) none of the above 
A) increase the velocity of money in the short run. 
B) increase real GDP in the short run. 
C) decrease the velocity of money in the short run. 
D) none of the above

Question 4

A price surprise is equal to the expected price level minus the actual price level.

Accepted Answer

A) True 
 B)False

Question 5

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

Accepted Answer

A) encourage firms to hire more workers. 
B) stimulate capital investment. 
C) encourage firms to use fewer nonrenewable resources. 
D) reduce corporate profits. 
A) encourage firms to hire more workers. 
B) stimulate capital investment. 
C) encourage firms to use fewer nonrenewable resources. 
D) reduce corporate profits.

Question 6

According to the rational expectation hypothesis,disequilibrium may exist in the labor market because

Accepted Answer

A) of unpredictable shocks. 
B) firms don't know the "true model." 
C) workers don't know the "true model." 
D) of predictable shocks. 
A) of unpredictable shocks. 
B) firms don't know the "true model." 
C) workers don't know the "true model." 
D) of predictable shocks.

Question 7

Among the propositions of the Keynesian school of thought is

Accepted Answer

A) economic policies are ineffective. 
B) aggregate supply management is the key to a stable economy. 
C) aggregate demand determines equilibrium output. 
D) rational expectations. 
A) economic policies are ineffective. 
B) aggregate supply management is the key to a stable economy. 
C) aggregate demand determines equilibrium output. 
D) rational expectations.

Question 8

Macroeconomic models differ in ways that are hard to standardize.

Accepted Answer

A) True 
 B)False

Question 9

Many economists challenged the idea of activist government intervention in the economy following the

Accepted Answer

A) inflation of the 1970s and early 1980s. 
B) recession of 1974-1975. 
C) recession of 1980-1982. 
D) all of the above 
A) inflation of the 1970s and early 1980s. 
B) recession of 1974-1975. 
C) recession of 1980-1982. 
D) all of the above

Question 10

The argument in favor of rational expectations is that

Accepted Answer

A) people will continue to acquire information as long as the marginal benefit of that information is positive. 
B) individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C) it is costless for individuals and firms to form rational expectations. 
D) if expectations were not rational,there would be unexploited profit opportunities available. 
A) people will continue to acquire information as long as the marginal benefit of that information is positive. 
B) individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C) it is costless for individuals and firms to form rational expectations. 
D) if expectations were not rational,there would be unexploited profit opportunities available.

Question 11

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

Accepted Answer

A) a 3% increase in real GDP. 
B) a 3% increase in disposable income. 
C) a 3% increase in the price level. 
D) a 3% decrease in the unemployment rate. 
A) a 3% increase in real GDP. 
B) a 3% increase in disposable income. 
C) a 3% increase in the price level. 
D) a 3% decrease in the unemployment rate.

Question 12

The quantity theory of money assumes the velocity of money is constant.

Accepted Answer

A) True 
 B)False

Question 13

Supply side economists think the equilibrium output is determined by the supply of money.

Accepted Answer

A) True 
 B)False

Question 14

Lowering taxes is a contractionary Keynesian policy.

Accepted Answer

A) True 
 B)False

Question 15

According to the rational expectations hypothesis,the occurrence of unemployment is due to

Accepted Answer

A) imperfect information. 
B) unpredictable shocks. 
C) downwardly rigid wages. 
D) a deficient level of aggregate demand. 
A) imperfect information. 
B) unpredictable shocks. 
C) downwardly rigid wages. 
D) a deficient level of aggregate demand.

Question 16

Assume that the demand for money depends on the interest rate.A decrease in the money supply will cause

Accepted Answer

A) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to decrease. 
B) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to increase. 
C) the interest rate to decrease,the quantity demanded of money to decrease,and the velocity of money to increase. 
D) the interest rate to decrease,the quantity demanded of money to increase,and the velocity of money to decrease. 
A) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to decrease. 
B) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to increase. 
C) the interest rate to decrease,the quantity demanded of money to decrease,and the velocity of money to increase. 
D) the interest rate to decrease,the quantity demanded of money to increase,and the velocity of money to decrease.

Question 17

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

Accepted Answer

A) are always correct. 
B) consistently overestimate the actual rate of inflation in the future. 
C) are correct on average,but are subject to errors that are distributed randomly. 
D) consistently underestimate the actual rate of inflation in the future. 
A) are always correct. 
B) consistently overestimate the actual rate of inflation in the future. 
C) are correct on average,but are subject to errors that are distributed randomly. 
D) consistently underestimate the actual rate of inflation in the future.

Question 18

Most monetarists advocate an activist monetary stabilization policy.

Accepted Answer

A) True 
 B)False

Question 19

Nearly $2 trillion was added to the national debt between 1983 and 1992.

Accepted Answer

A) True 
 B)False

Question 20

According to the quantity theory of money,nominal GDP will double if the money supply is

Accepted Answer

A) reduced by one-half. 
B) reduced threefold. 
C) doubled. 
D) tripled. 
A) reduced by one-half. 
B) reduced threefold. 
C) doubled. 
D) tripled.

Exam 18: Alternative Views in Macroeconomics

According to the Lucas supply function,if the expected price level is larger than the actual price level

If firms have rational expectations and if they set prices and wages on this basis,then prices and wages

The Fed increases money supply.In this case,the time lag problem of monetary policy may

A price surprise is equal to the expected price level minus the actual price level.

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

According to the rational expectation hypothesis,disequilibrium may exist in the labor market because

Among the propositions of the Keynesian school of thought is

Macroeconomic models differ in ways that are hard to standardize.

Many economists challenged the idea of activist government intervention in the economy following the

The argument in favor of rational expectations is that

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

The quantity theory of money assumes the velocity of money is constant.

Supply side economists think the equilibrium output is determined by the supply of money.

Lowering taxes is a contractionary Keynesian policy.

According to the rational expectations hypothesis,the occurrence of unemployment is due to

Assume that the demand for money depends on the interest rate.A decrease in the money supply will cause

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

Most monetarists advocate an activist monetary stabilization policy.

Nearly $2 trillion was added to the national debt between 1983 and 1992.

According to the quantity theory of money,nominal GDP will double if the money supply is

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