Question 1

If the stock of money is $100 billion,velocity is 4,and the price level is 5,what is income?

Accepted Answer

A) $5 billion 
B) $80 billion 
C) $125 billion 
D) $2,000 billion 
A) $5 billion 
B) $80 billion 
C) $125 billion 
D) $2,000 billion

Question 2

Those who believe in the rational expectations hypothesis advocate

Accepted Answer

A) active fiscal policy during recessions. 
B) active monetary policy during recessions. 
C) active monetary policy during inflationary periods only. 
D) no policy intervention. 
A) active fiscal policy during recessions. 
B) active monetary policy during recessions. 
C) active monetary policy during inflationary periods only. 
D) no policy intervention.

Question 3

Any test of rational expectations is a joint test of the underlying model that expectations are formed rationally.

Accepted Answer

A) True 
 B)False

Question 4

The Lucas supply model,in combination with the assumption that expectations are rational,leads to the conclusion that

Accepted Answer

A) expansionary policies,but not contractionary policies,can have an impact on real output. 
B) contractionary policies,but not expansionary policies,can have an impact on real output. 
C) only unanticipated policy changes can have an impact on output. 
D) neither anticipated nor unanticipated policy changes can have an impact on output. 
A) expansionary policies,but not contractionary policies,can have an impact on real output. 
B) contractionary policies,but not expansionary policies,can have an impact on real output. 
C) only unanticipated policy changes can have an impact on output. 
D) neither anticipated nor unanticipated policy changes can have an impact on output.

Question 5

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 new classical theory,an anticipated increase in aggregate demand

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 6

According to the new classical theory,anticipated policies do NOT affect the economy.

Accepted Answer

A) True 
 B)False

Question 7

According to the Laffer curve,if the economy is on the positively sloped section of the curve,then

Accepted Answer

A) both an increase and a decrease in tax rates will increase tax revenue. 
B) a decrease in the tax rate will increase tax revenue. 
C) an increase in the tax rate will increase tax revenue. 
D) both an increase and a decrease in tax rates will decrease tax revenues. 
A) both an increase and a decrease in tax rates will increase tax revenue. 
B) a decrease in the tax rate will increase tax revenue. 
C) an increase in the tax rate will increase tax revenue. 
D) both an increase and a decrease in tax rates will decrease tax revenues.

Question 8

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

Accepted Answer

A) will have no effect on the actual price level. 
B) will have no effect on real output. 
C) will have no effect on the expected price level. 
D) will have no effect on nominal output. 
A) will have no effect on the actual price level. 
B) will have no effect on real output. 
C) will have no effect on the expected price level. 
D) will have no effect on nominal output.

Question 9

Traditional macroeconomic models assume that people's expectations of inflation

Accepted Answer

A) are determined by looking at all the relevant information and forecasting the future inflation rate. 
B) will be zero in the future. 
C) are set by assuming a continuation of present inflation. 
D) are set by merely guessing what the future inflation rate will be. 
A) are determined by looking at all the relevant information and forecasting the future inflation rate. 
B) will be zero in the future. 
C) are set by assuming a continuation of present inflation. 
D) are set by merely guessing what the future inflation rate will be.

Question 10

The ratio of nominal GDP to the stock of money is the

Accepted Answer

A) money multiplier. 
B) velocity of money. 
C) real GDP. 
D) GDP deflator. 
A) money multiplier. 
B) velocity of money. 
C) real GDP. 
D) GDP deflator.

Question 11

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 new classical economists,under rational expectations an expected decrease in taxes would

Accepted Answer

A) shift AS1 to the right. 
B) shift AD1 to the right. 
C) shift AD1 to the left. 
D) not change AD or AS. 
A) shift AS1 to the right. 
B) shift AD1 to the right. 
C) shift AD1 to the left. 
D) not change AD or AS.

Question 12

The problem with the traditional macroeconomic treatment of expectations of inflation is that

Accepted Answer

A) the model is not consistent with the microeconomic assumption that individuals are rational,forward-looking people. 
B) the model assumes that individuals will merely guess at what the inflation rate will be. 
C) in the model people always assume that inflation will be zero. 
D) the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking. 
A) the model is not consistent with the microeconomic assumption that individuals are rational,forward-looking people. 
B) the model assumes that individuals will merely guess at what the inflation rate will be. 
C) in the model people always assume that inflation will be zero. 
D) the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

Question 13

According to the rational-expectation theory,an unanticipated increase in money supply increases both output and prices.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is assumed constant in the quantity theory of money?

Accepted Answer

A) money supply 
B) velocity 
C) the price level 
D) output 
A) money supply 
B) velocity 
C) the price level 
D) output

Question 15

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 increase in government spending or an increase in money supply will

Accepted Answer

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

Question 16

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place,the economy began to expand.These critics,though,argue that the expansion did not result from the supply-side policies,but rather from

Accepted Answer

A) the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B) the self-correcting nature of the economy. 
C) the increases in government spending that occurred at the same time the tax cuts became effective. 
D) a very large increase in the demand for U.S.exports at the same time that U.S.imports fell dramatically. 
A) the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B) the self-correcting nature of the economy. 
C) the increases in government spending that occurred at the same time the tax cuts became effective. 
D) a very large increase in the demand for U.S.exports at the same time that U.S.imports fell dramatically.

Question 17

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

Accepted Answer

A) the actual price level,but not the expected price level. 
B) neither the actual price level nor the expected price level. 
C) the expected price level,but not the actual price level. 
D) both the actual price level and the expected price level. 
A) the actual price level,but not the expected price level. 
B) neither the actual price level nor the expected price level. 
C) the expected price level,but not the actual price level. 
D) both the actual price level and the expected price level.

Question 18

The quantity theory of money can be written as

Accepted Answer

A) MV = PY. 
B) M/V = PY. 
C) MV = P/Y. 
D) MP = VP. 
A) MV = PY. 
B) M/V = PY. 
C) MV = P/Y. 
D) MP = VP.

Question 19

Which of the following is TRUE?

Accepted Answer

A) Measuring money supply using M2 reduces fluctuations in velocity. 
B) Measuring money supply using M1 reduces fluctuations in velocity. 
C) Measuring money supply using M2 increases fluctuations in velocity. 
D) Velocity does not depend on which money supply measurement we use. 
A) Measuring money supply using M2 reduces fluctuations in velocity. 
B) Measuring money supply using M1 reduces fluctuations in velocity. 
C) Measuring money supply using M2 increases fluctuations in velocity. 
D) Velocity does not depend on which money supply measurement we use.

Question 20

The implicit assumption behind the Economic Recovery Tax Act of 1981,which cut the individual income tax rate by 25% over three years,was that

Accepted Answer

A) the economy was on the negatively sloped portion of the Laffer curve. 
B) the economy was on the positively sloped portion of the Laffer curve. 
C) tax rate reductions will stimulate demand in the economy and move the economy to full employment. 
D) tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing. 
A) the economy was on the negatively sloped portion of the Laffer curve. 
B) the economy was on the positively sloped portion of the Laffer curve. 
C) tax rate reductions will stimulate demand in the economy and move the economy to full employment. 
D) tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing.

Exam 18: Alternative Views in Macroeconomics

If the stock of money is $100 billion,velocity is 4,and the price level is 5,what is income?

Those who believe in the rational expectations hypothesis advocate

Any test of rational expectations is a joint test of the underlying model that expectations are formed rationally.

The Lucas supply model,in combination with the assumption that expectations are rational,leads to the conclusion that

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 new classical theory,an anticipated increase in aggregate demand

According to the new classical theory,anticipated policies do NOT affect the economy.

According to the Laffer curve,if the economy is on the positively sloped section of the curve,then

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

Traditional macroeconomic models assume that people's expectations of inflation

The ratio of nominal GDP to the stock of money is the

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 new classical economists,under rational expectations an expected decrease in taxes would

The problem with the traditional macroeconomic treatment of expectations of inflation is that

According to the rational-expectation theory,an unanticipated increase in money supply increases both output and prices.

Which of the following is assumed constant in the quantity theory of money?

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 increase in government spending or an increase in money supply will

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place,the economy began to expand.These critics,though,argue that the expansion did not result from the supply-side policies,but rather from

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

The quantity theory of money can be written as

Which of the following is TRUE?

The implicit assumption behind the Economic Recovery Tax Act of 1981,which cut the individual income tax rate by 25% over three years,was 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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