Question 1

A monetarist would advocate decreasing the growth rate of money supply during a recession.

Accepted Answer

A) True 
 B)False

Question 2

If the demand for money depends on the interest rate,then a 15% increase in the money supply will increase

Accepted Answer

A) nominal GDP by 15%. 
B) nominal GDP by less than 15%. 
C) nominal GDP by more than 30%. 
D) real GDP by 30%. 
A) nominal GDP by 15%. 
B) nominal GDP by less than 15%. 
C) nominal GDP by more than 30%. 
D) real GDP by 30%.

Question 3

According to the Lucas supply function,the amount of output produced is NOT related to the price level if

Accepted Answer

A) people's expectations of the price level are higher than the actual price level. 
B) people's expectations of the price level are on target. 
C) people's expectations of the price level are lower than the actual price level. 
D) people's expectations of the price level are either higher or lower than the actual price level. 
A) people's expectations of the price level are higher than the actual price level. 
B) people's expectations of the price level are on target. 
C) people's expectations of the price level are lower than the actual price level. 
D) people's expectations of the price level are either higher or lower than the actual price level.

Question 4

According to the Lucas supply function,if a firm mistakenly perceives that all prices are going up because its own output price is going up,it will

Accepted Answer

A) decrease its production. 
B) increase its production. 
C) keep its production level constant. 
D) increase expectations regarding its own output price. 
A) decrease its production. 
B) increase its production. 
C) keep its production level constant. 
D) increase expectations regarding its own output price.

Question 5

A velocity of 6 means money changes hands,on average,every

Accepted Answer

A) 6 years. 
B) 6 months. 
C) 2 months. 
D) 1/6 of a month. 
A) 6 years. 
B) 6 months. 
C) 2 months. 
D) 1/6 of a month.

Question 6

Refer to the information provided in Figure 18.3 below to answer the questions that follow.
   Figure 18.3
-Refer to Figure 18.3.The tax rate that will maximize tax revenue is associated with point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 7

Which of the following statements is NOT consistent with the quantity theory of money?

Accepted Answer

A) The velocity of money can be affected by how frequently workers are paid. 
B) The velocity of money can be affected by the development of new financial instruments,such as interest-bearing checking accounts. 
C) The velocity of money can be affected by the manner in which the banking system clears transactions between banks. 
D) Velocity can change with changes in the interest rate. 
A) The velocity of money can be affected by how frequently workers are paid. 
B) The velocity of money can be affected by the development of new financial instruments,such as interest-bearing checking accounts. 
C) The velocity of money can be affected by the manner in which the banking system clears transactions between banks. 
D) Velocity can change with changes in the interest rate.

Question 8

Refer to the information provided in Figure 18.2 below to answer the questions that follow.
   Figure 18.2
-Refer to Figure 18.2.Suppose the economy is at Point A.According to the rational expectation theory,an unanticipated increase in money supply

Accepted Answer

A) leaves the economy at Point A. 
B) moves the economy to Point B. 
C) moves the economy to Point C. 
D) moves the economy to Point D. 
A) leaves the economy at Point A. 
B) moves the economy to Point B. 
C) moves the economy to Point C. 
D) moves the economy to Point D.

Question 9

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 Keynes,an expansionary monetary policy in the long run and after all the adjustments have been made

Accepted Answer

A) does not increase equilibrium output. 
B) increases equilibrium output above Y1. 
C) decreases equilibrium output below Y1. 
D) increases equilibrium output above Y1 and decreases the price level below P1. 
A) does not increase equilibrium output. 
B) increases equilibrium output above Y1. 
C) decreases equilibrium output below Y1. 
D) increases equilibrium output above Y1 and decreases the price level below P1.

Question 10

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called

Accepted Answer

A) new Keynesian economics. 
B) supply-side economics. 
C) monetarism. 
D) real business-cycle economics 
A) new Keynesian economics. 
B) supply-side economics. 
C) monetarism. 
D) real business-cycle economics

Question 11

According to the real business cycle theory,technological advances

Accepted Answer

A) increase the marginal product of labor,which causes real wages and output to decline. 
B) decrease the marginal product of labor,which causes real wages and output to increase. 
C) increase the marginal product of labor,which causes real wages to increase and output to decline. 
D) increase the marginal product of labor,which causes real wages and output to increase. 
A) increase the marginal product of labor,which causes real wages and output to decline. 
B) decrease the marginal product of labor,which causes real wages and output to increase. 
C) increase the marginal product of labor,which causes real wages to increase and output to decline. 
D) increase the marginal product of labor,which causes real wages and output to increase.

Question 12

Fluctuations in velocity tend to increase when measured using M1 instead of M2.

Accepted Answer

A) True 
 B)False

Question 13

According to the new classical theory,economic policies are

Accepted Answer

A) effective only if anticipated. 
B) ineffective if unanticipated. 
C) ineffective if anticipated. 
D) ineffective,whether anticipated or unanticipated. 
A) effective only if anticipated. 
B) ineffective if unanticipated. 
C) ineffective if anticipated. 
D) ineffective,whether anticipated or unanticipated.

Question 14

Refer to the information provided in Figure 18.3 below to answer the questions that follow.
   Figure 18.3
-Refer to Figure 18.3.At point B

Accepted Answer

A) an increase in tax rates will increase tax revenue. 
B) a decrease in tax rates will increase tax revenue. 
C) any change in tax rates will decrease tax revenue. 
D) any change in tax revenue will increase tax revenue. 
A) an increase in tax rates will increase tax revenue. 
B) a decrease in tax rates will increase tax revenue. 
C) any change in tax rates will decrease tax revenue. 
D) any change in tax revenue will increase tax revenue.

Question 15

If all firms have rational expectations and wages and prices are flexible,there will be

Accepted Answer

A) high unemployment because firms set their wages above the equilibrium wage rate. 
B) a shortage of labor because firms set their wage below the equilibrium wage rate. 
C) no unemployment. 
D) high unemployment because firms know the "true model." 
A) high unemployment because firms set their wages above the equilibrium wage rate. 
B) a shortage of labor because firms set their wage below the equilibrium wage rate. 
C) no unemployment. 
D) high unemployment because firms know the "true model."

Question 16

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

Accepted Answer

A) the monetary schools 
B) the classical school 
C) the Keynesian school 
D) the rational expectation school 
A) the monetary schools 
B) the classical school 
C) the Keynesian school 
D) the rational expectation school

Question 17

The Lucas supply function,in combination with the assumption that expectations are rational,implies that

Accepted Answer

A) neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B) an anticipated monetary policy change will have an effect on real output,but an anticipated fiscal policy change will not have an effect on real output. 
C) both anticipated monetary and fiscal policy changes will affect real output. 
D) an anticipated monetary policy change will have no effect on real output,but an anticipated fiscal policy change will have an effect on real output. 
A) neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B) an anticipated monetary policy change will have an effect on real output,but an anticipated fiscal policy change will not have an effect on real output. 
C) both anticipated monetary and fiscal policy changes will affect real output. 
D) an anticipated monetary policy change will have no effect on real output,but an anticipated fiscal policy change will have an effect on real output.

Question 18

Empirical evidence suggests that from 1960 until 2007,the velocity of money had,on average,been

Accepted Answer

A) constant. 
B) decreasing. 
C) rising. 
D) fluctuating around zero. 
A) constant. 
B) decreasing. 
C) rising. 
D) fluctuating around zero.

Question 19

If the stock of money is $250 billion,velocity is 5,and the price level is 10,what is real output?

Accepted Answer

A) $5 billion 
B) $125 billion 
C) $500 billion 
D) $12,500 billion 
A) $5 billion 
B) $125 billion 
C) $500 billion 
D) $12,500 billion

Question 20

Keynes believed which of the following?

Accepted Answer

A) The government has a role to play in fighting inflation,but not in fighting unemployment. 
B) The government has a role to play in fighting unemployment,but not in fighting inflation. 
C) The government does not have a role to play in fighting inflation or unemployment. 
D) The government has a role to play in fighting inflation and unemployment. 
A) The government has a role to play in fighting inflation,but not in fighting unemployment. 
B) The government has a role to play in fighting unemployment,but not in fighting inflation. 
C) The government does not have a role to play in fighting inflation or unemployment. 
D) The government has a role to play in fighting inflation and unemployment.

Exam 18: Alternative Views in Macroeconomics

A monetarist would advocate decreasing the growth rate of money supply during a recession.

If the demand for money depends on the interest rate,then a 15% increase in the money supply will increase

According to the Lucas supply function,the amount of output produced is NOT related to the price level if

According to the Lucas supply function,if a firm mistakenly perceives that all prices are going up because its own output price is going up,it will

A velocity of 6 means money changes hands,on average,every

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.The tax rate that will maximize tax revenue is associated with point

Which of the following statements is NOT consistent with the quantity theory of money?

Refer to the information provided in Figure 18.2 below to answer the questions that follow. Figure 18.2 -Refer to Figure 18.2.Suppose the economy is at Point A.According to the rational expectation theory,an unanticipated increase in money supply

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 Keynes,an expansionary monetary policy in the long run and after all the adjustments have been made

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called

According to the real business cycle theory,technological advances

Fluctuations in velocity tend to increase when measured using M1 instead of M2.

According to the new classical theory,economic policies are

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.At point B

If all firms have rational expectations and wages and prices are flexible,there will be

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

The Lucas supply function,in combination with the assumption that expectations are rational,implies that

Empirical evidence suggests that from 1960 until 2007,the velocity of money had,on average,been

If the stock of money is $250 billion,velocity is 5,and the price level is 10,what is real output?

Keynes believed which of the following?

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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