Question 1

According to the rational expectation hypothesis,disequilibrium may exist in the labor market because

Accepted Answer

A) of unpredictable shocks. 
B) firms don't know the "true model." 
C) workers don't know the "true model." 
D) of predictable shocks. 
A) of unpredictable shocks. 
B) firms don't know the "true model." 
C) workers don't know the "true model." 
D) of predictable shocks.

Question 2

Which of the following is NOT one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

Accepted Answer

A) The rational-expectations assumption is difficult to test. 
B) Macroeconomic models differ in ways that are hard to standardize for. 
C) Macroeconomic models cannot be expressed in mathematical terms. 
D) The amount of data available is fairly small. 
A) The rational-expectations assumption is difficult to test. 
B) Macroeconomic models differ in ways that are hard to standardize for. 
C) Macroeconomic models cannot be expressed in mathematical terms. 
D) The amount of data available is fairly small.

Question 3

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

Accepted Answer

A) a 3% increase in real GDP. 
B) a 3% increase in disposable income. 
C) a 3% increase in the price level. 
D) a 3% decrease in the unemployment rate. 
A) a 3% increase in real GDP. 
B) a 3% increase in disposable income. 
C) a 3% increase in the price level. 
D) a 3% decrease in the unemployment rate.

Question 4

According to the Lucas supply function,the amount of output produced is NOT related to the price level if

Accepted Answer

A) people's expectations of the price level are higher than the actual price level. 
B) people's expectations of the price level are on target. 
C) people's expectations of the price level are lower than the actual price level. 
D) people's expectations of the price level are either higher or lower than the actual price level. 
A) people's expectations of the price level are higher than the actual price level. 
B) people's expectations of the price level are on target. 
C) people's expectations of the price level are lower than the actual price level. 
D) people's expectations of the price level are either higher or lower than the actual price level.

Question 5

Assume that the demand for money depends on the interest rate.A decrease in the money supply will cause

Accepted Answer

A) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to decrease. 
B) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to increase. 
C) the interest rate to decrease,the quantity demanded of money to decrease,and the velocity of money to increase. 
D) the interest rate to decrease,the quantity demanded of money to increase,and the velocity of money to decrease. 
A) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to decrease. 
B) the interest rate to increase,the quantity demanded of money to decrease,and the velocity of money to increase. 
C) the interest rate to decrease,the quantity demanded of money to decrease,and the velocity of money to increase. 
D) the interest rate to decrease,the quantity demanded of money to increase,and the velocity of money to decrease.

Question 6

The Lucas supply function incorporates the idea that output depends on the difference between the actual price level and the expected price level.

Accepted Answer

A) True 
 B)False

Question 7

Many economists challenged the idea of activist government intervention in the economy following the

Accepted Answer

A) inflation of the 1970s and early 1980s. 
B) recession of 1974-1975. 
C) recession of 1980-1982. 
D) all of the above 
A) inflation of the 1970s and early 1980s. 
B) recession of 1974-1975. 
C) recession of 1980-1982. 
D) all of the above

Question 8

If the stock of money is $60 billion,velocity is 5,and real output is $100 billion,what is the price level?

Accepted Answer

A) 0.12 
B) 1.4 
C) 3 
D) 6 
A) 0.12 
B) 1.4 
C) 3 
D) 6

Question 9

According to the Laffer curve,

Accepted Answer

A) an increase in tax rates will always increase tax revenues. 
B) a decrease in tax rates will always decrease tax revenues. 
C) a decrease in tax rates will always increases tax revenues. 
D) an increase in tax rates will have an inconsistent effect on tax revenues. 
A) an increase in tax rates will always increase tax revenues. 
B) a decrease in tax rates will always decrease tax revenues. 
C) a decrease in tax rates will always increases tax revenues. 
D) an increase in tax rates will have an inconsistent effect on tax revenues.

Question 10

According to monetarists

Accepted Answer

A) the economy is relatively stable. 
B) economic policy is effective in increasing output. 
C) the economy is very unstable. 
D) government spending is the main source of inflation. 
A) the economy is relatively stable. 
B) economic policy is effective in increasing output. 
C) the economy is very unstable. 
D) government spending is the main source of inflation.

Question 11

Suppose that the stock of money is $150 billion and nominal GDP is $750 billion.The velocity of money is

Accepted Answer

A) 4. 
B) 5. 
C) 16.7. 
D) 600. 
A) 4. 
B) 5. 
C) 16.7. 
D) 600.

Question 12

Keynesians believe that government policies can improve economic performance.

Accepted Answer

A) True 
 B)False

Question 13

According to the Lucas supply function,workers who experience a positive price surprise will work more hours when

Accepted Answer

A) there is no substitution effect from a positive price surprise. 
B) there is no income effect from a positive price surprise. 
C) the substitution effect dominates the income effect. 
D) the income effect dominates the substitution effect. 
A) there is no substitution effect from a positive price surprise. 
B) there is no income effect from a positive price surprise. 
C) the substitution effect dominates the income effect. 
D) the income effect dominates the substitution effect.

Question 14

Refer to the information provided in Figure 18.3 below to answer the questions that follow.   Figure 18.3
-Refer to Figure 18.3.The tax rate that will maximize tax revenue is associated with point

Accepted Answer

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

Question 15

The real business cycle theory places little emphasis on shocks to technology.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The new classical theoretical critique of the existing macroeconomic models is based on

Accepted Answer

A) the way people form their expectations. 
B) the nature of the tradeoff between inflation and growth. 
C) wages and labor market equilibrium. 
D) the link between the money market and the goods market. 
A) the way people form their expectations. 
B) the nature of the tradeoff between inflation and growth. 
C) wages and labor market equilibrium. 
D) the link between the money market and the goods market.

Question 18

Who wrote the General Theory of Employment,Interest,and Money?

Accepted Answer

A) Adam Smith 
B) David Ricardo 
C) Milton Friedman 
D) John Maynard Keynes 
A) Adam Smith 
B) David Ricardo 
C) Milton Friedman 
D) John Maynard Keynes

Question 19

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 20

The quantity theory of money assumes the velocity of money is constant.

Accepted Answer

A) True 
 B)False

Exam 18: Alternative Views in Macroeconomics

According to the rational expectation hypothesis,disequilibrium may exist in the labor market because

Which of the following is NOT one of the reasons why it is difficult to empirically test alternative macroeconomic models against one another?

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

According to the Lucas supply function,the amount of output produced is NOT related to the price level if

Assume that the demand for money depends on the interest rate.A decrease in the money supply will cause

The Lucas supply function incorporates the idea that output depends on the difference between the actual price level and the expected price level.

Many economists challenged the idea of activist government intervention in the economy following the

If the stock of money is $60 billion,velocity is 5,and real output is $100 billion,what is the price level?

According to the Laffer curve,

According to monetarists

Suppose that the stock of money is $150 billion and nominal GDP is $750 billion.The velocity of money is

Keynesians believe that government policies can improve economic performance.

According to the Lucas supply function,workers who experience a positive price surprise will work more hours when

Refer to the information provided in Figure 18.3 below to answer the questions that follow. Figure 18.3 -Refer to Figure 18.3.The tax rate that will maximize tax revenue is associated with point

The real business cycle theory places little emphasis on shocks to technology.

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

The new classical theoretical critique of the existing macroeconomic models is based on

Who wrote the General Theory of Employment,Interest,and Money?

Traditional macroeconomic models assume that people's expectations of inflation

The quantity theory of money assumes the velocity of money is constant.

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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