Question 1

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 2

A rational-expectations theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The leading spokesman for monetarism over the last few decades was

Accepted Answer

A) John Kenneth Galbraith. 
B) Milton Friedman. 
C) Robert E.Lucas. 
D) Paul Samuelson. 
A) John Kenneth Galbraith. 
B) Milton Friedman. 
C) Robert E.Lucas. 
D) Paul Samuelson.

Question 5

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the

Accepted Answer

A) aggregate supply curve. 
B) Lucas supply curve. 
C) aggregate production function. 
D) Laffer curve. 
A) aggregate supply curve. 
B) Lucas supply curve. 
C) aggregate production function. 
D) Laffer curve.

Question 6

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

Question 7

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 8

According to supply-side economics,the government needs to focus on policies to

Accepted Answer

A) stimulate demand. 
B) decrease demand. 
C) stimulate supply. 
D) decrease supply. 
A) stimulate demand. 
B) decrease demand. 
C) stimulate supply. 
D) decrease supply.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If the equation for the quantity theory of money is looked on as a demand-for-money equation,then the demand for money depends on

Accepted Answer

A) nominal income but not on the interest rate. 
B) nominal income and the interest rate. 
C) real income but not on the interest rate. 
D) real income and the interest rate. 
A) nominal income but not on the interest rate. 
B) nominal income and the interest rate. 
C) real income but not on the interest rate. 
D) real income and the interest rate.

Question 11

People are said to have rational expectations if they

Accepted Answer

A) use all available information in forming their expectations. 
B) assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years. 
C) merely guess at the inflation rate. 
D) assume that this year's inflation rate will be the same as last year's inflation rate. 
A) use all available information in forming their expectations. 
B) assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years. 
C) merely guess at the inflation rate. 
D) assume that this year's inflation rate will be the same as last year's inflation rate.

Question 12

A velocity of ________ means money changes hands,on average,every 4 months.

Accepted Answer

A) 0.25 
B) 1.25 
C) 3 
D) 4 
A) 0.25 
B) 1.25 
C) 3 
D) 4

Question 13

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 14

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.

Question 15

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 cut in tax rates will decrease tax revenue if the economy moves from Point

Accepted Answer

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

Question 16

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 17

The primary argument against the rational-expectations assumption is that

Accepted Answer

A) the costs of formulating rational expectations are very low. 
B) it requires households and firms to know too much. 
C) it assumes that unexploited opportunities for profit persist in the economy. 
D) people expect certain outcomes from the government's policy actions. 
A) the costs of formulating rational expectations are very low. 
B) it requires households and firms to know too much. 
C) it assumes that unexploited opportunities for profit persist in the economy. 
D) people expect certain outcomes from the government's policy actions.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Monetarists argue that the money supply should

Accepted Answer

A) grow at a rate equal to the average growth of real output. 
B) grow at a rate slower than the average growth of real output. 
C) grow at a rate greater than the average growth of real output. 
D) be held constant over the business cycle. 
A) grow at a rate equal to the average growth of real output. 
B) grow at a rate slower than the average growth of real output. 
C) grow at a rate greater than the average growth of real output. 
D) be held constant over the business cycle.

Question 20

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.

Exam 18: Alternative Views in Macroeconomics

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

A rational-expectations theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

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

The leading spokesman for monetarism over the last few decades was

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate 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 government spending would

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

According to supply-side economics,the government needs to focus on policies to

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

If the equation for the quantity theory of money is looked on as a demand-for-money equation,then the demand for money depends on

People are said to have rational expectations if they

A velocity of ________ means money changes hands,on average,every 4 months.

Which of the following is TRUE?

A problem with comparing macroeconomic models is that

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 cut in tax rates will decrease tax revenue if the economy moves from Point

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

The primary argument against the rational-expectations assumption is that

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

Monetarists argue that the money supply should

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

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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