Question 1

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 C

Question 2

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. B

Question 3

Refer to the information provided in Figure 18.3 below to answer the questions that follow.   Figure 18.3
-Refer to Figure 18.3.A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

Accepted Answer

A) A 
B) B 
C) C 
D) both A and B 
A) A 
B) B 
C) C 
D) both A and B D

Question 4

The Economic Recovery Tax Act of 1981 allowed firms to depreciate their capital at a very rapid rate for tax purposes.This

Accepted Answer

A) increased the tax liability of firms and discouraged them from investing. 
B) decreased tax liability and encouraged investment. 
C) increased the tax liability of firms and encouraged them to invest. 
D) decreased tax liability and discouraged investment. 
A) increased the tax liability of firms and discouraged them from investing. 
B) decreased tax liability and encouraged investment. 
C) increased the tax liability of firms and encouraged them to invest. 
D) decreased tax liability and discouraged investment.

Question 5

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 6

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 7

If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest,

Accepted Answer

A) aggregate supply will increase,aggregate output will increase,and the price level will increase. 
B) aggregate supply will increase,aggregate output will increase,and the price level will decrease. 
C) both aggregate supply and demand will increase,aggregate output will increase,and the price level will increase. 
D) aggregate supply will increase,aggregate demand will decrease,aggregate output will increase,and the price level will decrease. 
A) aggregate supply will increase,aggregate output will increase,and the price level will increase. 
B) aggregate supply will increase,aggregate output will increase,and the price level will decrease. 
C) both aggregate supply and demand will increase,aggregate output will increase,and the price level will increase. 
D) aggregate supply will increase,aggregate demand will decrease,aggregate output will increase,and the price level will decrease.

Question 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that two important factors in influencing consumer perceptions of inflation are ________ and ________.

Accepted Answer

A) the value of the British pound;the value of the euro 
B) food prices;the stock of money 
C) interest rates;the unemployment rate 
D) gas prices;media attention to price increases 
A) the value of the British pound;the value of the euro 
B) food prices;the stock of money 
C) interest rates;the unemployment rate 
D) gas prices;media attention to price increases

Question 18

Supporters of supply-side economics claim that Reagan's tax policies were quite successful in stimulating the economy because

Accepted Answer

A) almost immediately after the tax cuts,the economy expanded and the recession of 1980-1982 came to an end. 
B) inflation rates fell sharply from the high rates of 1980 and 1981. 
C) throughout most of the 1980s,federal receipts continued to rise even though tax rates had been cut. 
D) all of the above 
A) almost immediately after the tax cuts,the economy expanded and the recession of 1980-1982 came to an end. 
B) inflation rates fell sharply from the high rates of 1980 and 1981. 
C) throughout most of the 1980s,federal receipts continued to rise even though tax rates had been cut. 
D) all of the above

Question 19

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.

Question 20

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.

Exam 18: Alternative Views in Macroeconomics

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

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

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

The Economic Recovery Tax Act of 1981 allowed firms to depreciate their capital at a very rapid rate for tax purposes.This

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

Among the propositions of the Keynesian school of thought is

If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest,

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

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?

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

The argument in favor of rational expectations is that

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

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

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

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

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

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that two important factors in influencing consumer perceptions of inflation are ________ and ________.

Supporters of supply-side economics claim that Reagan's tax policies were quite successful in stimulating the economy because

Keynes believed which of the following?

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

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.

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that two important factors in influencing consumer perceptions of inflation are and .