Question 1

According to the Lucas supply function,if the expected price level is larger than the actual price level

Accepted Answer

A) real output increases. 
B) real output decreases. 
C) nominal output increases. 
D) nominal output decreases. 
A) real output increases. 
B) real output decreases. 
C) nominal output increases. 
D) nominal output decreases.

Question 2

Which of the following would be considered a supply-side policy?

Accepted Answer

A) an increase in the minimum wage that would cause consumer spending to increase 
B) an increase in government spending that would lead to increased aggregate demand 
C) investment tax credits for businesses to encourage investment 
D) a decrease in the growth of the money supply 
A) an increase in the minimum wage that would cause consumer spending to increase 
B) an increase in government spending that would lead to increased aggregate demand 
C) investment tax credits for businesses to encourage investment 
D) a decrease in the growth of the money supply

Question 3

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

Accepted Answer

A) prices and wages will be set at levels that do not clear the goods and labor markets. 
B) prices will be set at levels that ensure equilibrium in the goods market,but wages will be set at levels that do not clear the labor market. 
C) prices and wages will be set at levels that ensure equilibrium in the goods and labor markets. 
D) wages will be set at levels that ensure equilibrium in the labor market,but prices will be set at levels that do not clear the goods market. 
A) prices and wages will be set at levels that do not clear the goods and labor markets. 
B) prices will be set at levels that ensure equilibrium in the goods market,but wages will be set at levels that do not clear the labor market. 
C) prices and wages will be set at levels that ensure equilibrium in the goods and labor markets. 
D) wages will be set at levels that ensure equilibrium in the labor market,but prices will be set at levels that do not clear the goods market.

Question 4

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 5

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 6

New Keynesian economics assumes rational expectations,flexible wages,and flexible prices.

Accepted Answer

A) True 
 B)False

Question 7

Too much data is available to test macroeconomic models.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) a positive price surprise. 
B) no price surprise. 
C) a negative price surprise. 
D) a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy. 
A) a positive price surprise. 
B) no price surprise. 
C) a negative price surprise. 
D) a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy.

Question 9

If the stock of money is $40 billion,velocity is 3,and real output is $60 billion,what is the price level?

Accepted Answer

A) 0.5 
B) 2 
C) 2.5 
D) 4 
A) 0.5 
B) 2 
C) 2.5 
D) 4

Question 10

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 monetarists,an expansionary fiscal policy in the long run and after all the adjustments have been made

Accepted Answer

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

Question 11

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 12

Lowering taxes is a contractionary Keynesian policy.

Accepted Answer

A) True 
 B)False

Question 13

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

According to the rational expectations hypothesis,unemployment

Accepted Answer

A) does not exist in the short run. 
B) may exist,and when it does,it stays for a long period of time. 
C) may exist,and if it does,it will be temporary. 
D) only exists in the long run. 
A) does not exist in the short run. 
B) may exist,and when it does,it stays for a long period of time. 
C) may exist,and if it does,it will be temporary. 
D) only exists in the long run.

Question 16

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 17

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

Accepted Answer

A) what they perceive past inflation to have been. 
B) equal to the actual estimates of past inflation made by the government. 
C) directly related to the interest rate. 
D) relatively unpredictable. 
A) what they perceive past inflation to have been. 
B) equal to the actual estimates of past inflation made by the government. 
C) directly related to the interest rate. 
D) relatively unpredictable.

Question 18

Monetarists believe

Accepted Answer

A) the economy is stable. 
B) the economy is rigid. 
C) the economy does not equilibrate quickly. 
D) the economy is unstable. 
A) the economy is stable. 
B) the economy is rigid. 
C) the economy does not equilibrate quickly. 
D) the economy is unstable.

Question 19

According to supply-side economists,as tax rates are reduced,labor supply should increase.This implies that

Accepted Answer

A) the income effect of a wage change is greater than the substitution effect of a wage change. 
B) the substitution effect of a wage change is greater than the income effect of a wage change. 
C) there is no income effect when tax rates are changed. 
D) there is no substitution effect when tax rates are changed. 
A) the income effect of a wage change is greater than the substitution effect of a wage change. 
B) the substitution effect of a wage change is greater than the income effect of a wage change. 
C) there is no income effect when tax rates are changed. 
D) there is no substitution effect when tax rates are changed.

Question 20

If the demand for money depends on the interest rate,velocity is

Accepted Answer

A) not constant,and the quantity theory of money does hold. 
B) not constant,and the quantity theory of money does not hold. 
C) constant,and the quantity theory of money does not hold. 
D) constant,and the quantity theory of money does hold. 
A) not constant,and the quantity theory of money does hold. 
B) not constant,and the quantity theory of money does not hold. 
C) constant,and the quantity theory of money does not hold. 
D) constant,and the quantity theory of money does hold.

Exam 18: Alternative Views in Macroeconomics

According to the Lucas supply function,if the expected price level is larger than the actual price level

Which of the following would be considered a supply-side policy?

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

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

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

New Keynesian economics assumes rational expectations,flexible wages,and flexible prices.

Too much data is available to test macroeconomic models.

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

If the stock of money is $40 billion,velocity is 3,and real output is $60 billion,what is the price level?

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 monetarists,an expansionary fiscal policy in the long run and after all the adjustments have been made

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

Lowering taxes is a contractionary Keynesian policy.

The Laffer curve shows the relationship between the tax rate and the inflation rate.

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

According to the rational expectations hypothesis,unemployment

The quantity theory of money can be written as

Related to the Economics in Practice on p.656: Surveys by the bank of England suggest that consumers tend to expect future inflation to be

Monetarists believe

According to supply-side economists,as tax rates are reduced,labor supply should increase.This implies that

If the demand for money depends on the interest rate,velocity is

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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