Question 1

Keynesians believe the economy can be managed using monetary and fiscal policy.

Accepted Answer

A) True 
 B)False  True

Question 2

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

Accepted Answer

A)  any announced policy change 
B)  any unanticipated policy change 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes 
A)  any announced policy change 
B)  any unanticipated policy change 
C)  only unanticipated fiscal policy changes 
D)  only unanticipated monetary policy changes B

Question 3

Refer to the information provided in Figure 17.1 below to answer the questions that follow.   Figure 17.1
-Refer to Figure 17.1. 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. B

Question 4

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 5

The microeconomic view of the expectations of inflation are based on the assumption that

Accepted Answer

A)  individuals are rational, forward-looking people. 
B)  individuals will merely guess at what the inflation rate will be. 
C)  people always assume that inflation will be zero. 
D)  individuals are highly sophisticated in their economic thinking. 
A)  individuals are rational, forward-looking people. 
B)  individuals will merely guess at what the inflation rate will be. 
C)  people always assume that inflation will be zero. 
D)  individuals are highly sophisticated in their economic thinking.

Question 6

A velocity of 3 means money changes hands, on average, every

Accepted Answer

A)  3 years. 
B)  4 months. 
C)  3 months. 
D)  1/3 of a month. 
A)  3 years. 
B)  4 months. 
C)  3 months. 
D)  1/3 of a month.

Question 7

According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target.

Accepted Answer

A)  directly related 
B)  inversely related 
C)  negatively related 
D)  not related 
A)  directly related 
B)  inversely related 
C)  negatively related 
D)  not related

Question 8

According to the rational expectation hypothesis, unpredictable shocks may cause

Accepted Answer

A)  disequilibrium in the labor market. 
B)  uncontrollable inflation. 
C)  long-lasting recession. 
D)  sustained levels of unemployment. 
A)  disequilibrium in the labor market. 
B)  uncontrollable inflation. 
C)  long-lasting recession. 
D)  sustained levels of unemployment.

Question 9

It is difficult in economics to perform controlled experiments.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the information provided in Figure 17.2 below to answer the questions that follow.   Figure 17.2
-Refer to Figure 17.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.

Accepted Answer

A)  Keynesian 
B)  the new classical 
C)  monetarist 
D)  none of the above 
A)  Keynesian 
B)  the new classical 
C)  monetarist 
D)  none of the above

Question 11

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________.

Accepted Answer

A)  increases; decreases 
B)  decreases; increases 
C)  decreases; remains constant 
D)  decreases; decreases 
A)  increases; decreases 
B)  decreases; increases 
C)  decreases; remains constant 
D)  decreases; decreases

Question 12

The ratio of nominal GDP to the stock of money is the

Accepted Answer

A)  money multiplier. 
B)  velocity of money. 
C)  real GDP. 
D)  GDP deflator. 
A)  money multiplier. 
B)  velocity of money. 
C)  real GDP. 
D)  GDP deflator.

Question 13

If the stock of money is $200 billion, velocity is 5, and the price level is 5, what is income?

Accepted Answer

A)  $8 billion 
B)  $40 billion 
C)  $200 billion 
D)  $5,000 billion 
A)  $8 billion 
B)  $40 billion 
C)  $200 billion 
D)  $5,000 billion

Question 14

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going ________ because its own output price is going ________, it will ________ its production level.

Accepted Answer

A)  up; up; increase 
B)  down; down; reduce 
C)  up; up; hold constant 
D)  up; down; increase 
A)  up; up; increase 
B)  down; down; reduce 
C)  up; up; hold constant 
D)  up; down; increase

Question 15

The Lucas supply function states that real output will not change from its fixed level

Accepted Answer

A)  only if there is a positive price surprise. 
B)  only if there is a negative price surprise. 
C)  only if there is no price surprise. 
D)  Both A and B are possible. 
A)  only if there is a positive price surprise. 
B)  only if there is a negative price surprise. 
C)  only if there is no price surprise. 
D)  Both A and B are possible.

Question 16

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 17

With the Lucas supply function, a price ________ means actual price is either greater than or lower than expected price.

Accepted Answer

A)  floor 
B)  ceiling 
C)  anomaly 
D)  surprise 
A)  floor 
B)  ceiling 
C)  anomaly 
D)  surprise

Question 18

If the stock of money is $150 billion, velocity is 4, and the price level is 3, what is real output?

Accepted Answer

A)  $37.5 billion 
B)  $112.5 billion 
C)  $200 billion 
D)  $1,800 billion 
A)  $37.5 billion 
B)  $112.5 billion 
C)  $200 billion 
D)  $1,800 billion

Question 19

Keynesians believe that government policies can improve economic performance.

Accepted Answer

A) True 
 B)False

Question 20

17.3 Supply-Side Economics
-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.

Exam 17: Alternative Views in Macroeconomics

Keynesians believe the economy can be managed using monetary and fiscal policy.

According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1 -Refer to Figure 17.1. The tax rate that will maximize tax revenue is associated with point

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

The microeconomic view of the expectations of inflation are based on the assumption that

A velocity of 3 means money changes hands, on average, every

According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target.

According to the rational expectation hypothesis, unpredictable shocks may cause

It is difficult in economics to perform controlled experiments.

Refer to the information provided in Figure 17.2 below to answer the questions that follow. Figure 17.2 -Refer to Figure 17.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.

According to new classical economists, if the Fed ________ the money supply after it announces it will do so, output remains constant and the price level ________.

The ratio of nominal GDP to the stock of money is the

If the stock of money is $200 billion, velocity is 5, and the price level is 5, what is income?

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going ________ because its own output price is going ________, it will ________ its production level.

The Lucas supply function states that real output will not change from its fixed level

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

With the Lucas supply function, a price ________ means actual price is either greater than or lower than expected price.

If the stock of money is $150 billion, velocity is 4, and the price level is 3, what is real output?

Keynesians believe that government policies can improve economic performance.

17.3 Supply-Side Economics -According to supply-side economics, the government needs to focus on policies to

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

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost 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 Economies

Critical Thinking About Research

Filters

According to new classical economists, if the Fed the money supply after it announces it will do so, output remains constant and the price level .

According to the Lucas supply function, if a firm mistakenly perceives that all prices are going because its own output price is going , it will its production level.