Question 1

According to the Laffer curve,an increase in the tax rate may decrease tax revenues.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

According to the Lucas supply function,the economy will produce more output when

Accepted Answer

A) prices are unexpectedly higher than when prices are at their expected level. 
B) wages are below the expected level. 
C) prices are unexpectedly lower than when prices are at their expected level. 
D) prices are exactly equal to the expected level. 
A) prices are unexpectedly higher than when prices are at their expected level. 
B) wages are below the expected level. 
C) prices are unexpectedly lower than when prices are at their expected level. 
D) prices are exactly equal to the expected level.

Question 5

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 6

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.

Question 7

With the Lucas supply function,a price surprise means

Accepted Answer

A) actual price is greater than expected price. 
B) actual price is less than expected price. 
C) actual price equals expected price. 
D) actual price is either greater than or lower than expected price. 
A) actual price is greater than expected price. 
B) actual price is less than expected price. 
C) actual price equals expected price. 
D) actual price is either greater than or lower than expected price.

Question 8

Keynesian economics includes the idea that

Accepted Answer

A) economic policies are ineffective. 
B) the economy is basically stable. 
C) prices adjust to clear the markets. 
D) labor markets don't always clear due to wage rigidities. 
A) economic policies are ineffective. 
B) the economy is basically stable. 
C) prices adjust to clear the markets. 
D) labor markets don't always clear due to wage rigidities.

Question 9

Reduction of government regulation is a stimulative aggregate supply policy.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

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 increase 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) none of the above 
A) shift AS1 to the right. 
B) shift AD1 to the right. 
C) shift AD1 to the left. 
D) none of the above

Question 13

Expectations are hard to test even though economists know the model the public uses when forming expectations.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the substitution effect dominates the income effect.When workers experience a positive price surprise,they

Accepted Answer

A) correctly perceive that their real wage rate has fallen,which leads them to work fewer hours. 
B) incorrectly perceive that their real wage rate has fallen,which leads them to work fewer hours. 
C) correctly perceive that their real wage rate has risen,which leads them to work more hours. 
D) incorrectly perceive that their real wage rate has risen,which leads them to work more hours. 
A) correctly perceive that their real wage rate has fallen,which leads them to work fewer hours. 
B) incorrectly perceive that their real wage rate has fallen,which leads them to work fewer hours. 
C) correctly perceive that their real wage rate has risen,which leads them to work more hours. 
D) incorrectly perceive that their real wage rate has risen,which leads them to work more hours.

Question 15

It is difficult to test whether the velocity of money is constant over time because

Accepted Answer

A) there has been very little variation in the money supply over time. 
B) there may be a time lag between a change in the money supply and its effects on nominal GDP. 
C) there is only one definition of the money supply. 
D) it is difficult to measure the value of nominal GDP over time. 
A) there has been very little variation in the money supply over time. 
B) there may be a time lag between a change in the money supply and its effects on nominal GDP. 
C) there is only one definition of the money supply. 
D) it is difficult to measure the value of nominal GDP over time.

Question 16

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 17

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 18

Most empirical data support the idea that money demand depends on the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

According to the Lucas supply function,if people's expectations are on target,then the amount of output they produce

Accepted Answer

A) is not related to the price level. 
B) is directly related to the price level. 
C) will always be below potential GDP. 
D) will always be above potential GDP. 
A) is not related to the price level. 
B) is directly related to the price level. 
C) will always be below potential GDP. 
D) will always be above potential GDP.

Question 20

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

Accepted Answer

A) not change output. 
B) decrease output,but never increase output. 
C) either increase or decrease output,depending on the type of monetary policy change. 
D) increase output,but never decrease output. 
A) not change output. 
B) decrease output,but never increase output. 
C) either increase or decrease output,depending on the type of monetary policy change. 
D) increase output,but never decrease output.

Exam 18: Alternative Views in Macroeconomics

According to the Laffer curve,an increase in the tax rate may decrease tax revenues.

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

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

According to the Lucas supply function,the economy will produce more output when

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

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

With the Lucas supply function,a price surprise means

Keynesian economics includes the idea that

Reduction of government regulation is a stimulative aggregate supply policy.

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

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

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 increase in government spending would

Expectations are hard to test even though economists know the model the public uses when forming expectations.

Assume that the substitution effect dominates the income effect.When workers experience a positive price surprise,they

It is difficult to test whether the velocity of money is constant over time because

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

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

Most empirical data support the idea that money demand depends on the interest rate.

According to the Lucas supply function,if people's expectations are on target,then the amount of output they produce

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