Question 1

According to the real business cycle theory, ________ are responsible for economic growth.

Accepted Answer

A)  expansionary fiscal and monetary policies 
B)  positive shifts in the AD curve 
C)  trade and income policies 
D)  positive shifts in the AS curve 
A)  expansionary fiscal and monetary policies 
B)  positive shifts in the AD curve 
C)  trade and income policies 
D)  positive shifts in the AS curve

Question 2

If income is $60 billion, the price level is 6, and the stock of money is $36 billion, what is the velocity of money?

Accepted Answer

A)  2.4 
B)  3.6 
C)  10 
D)  36 
A)  2.4 
B)  3.6 
C)  10 
D)  36

Question 3

The argument in favor of rational expectations is that

Accepted Answer

A)  people will continue to acquire information as long as the marginal benefit of that information is positive. 
B)  individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C)  it is costless for individuals and firms to form rational expectations. 
D)  if expectations were not rational, there would be unexploited profit opportunities available. 
A)  people will continue to acquire information as long as the marginal benefit of that information is positive. 
B)  individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy. 
C)  it is costless for individuals and firms to form rational expectations. 
D)  if expectations were not rational, there would be unexploited profit opportunities available.

Question 4

The ________ hypothesis suggests that errors in forecasting future inflation rates are due to random, unpredictable events.

Accepted Answer

A)  rational-expectations 
B)  stagflation 
C)  chaos-theory 
D)  Friedman 
A)  rational-expectations 
B)  stagflation 
C)  chaos-theory 
D)  Friedman

Question 5

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 6

According to the ________ hypothesis, unemployment may occur, and if it does, it will be temporary.

Accepted Answer

A)  Keynesian labor 
B)  Socialist workers' 
C)  rational expectations 
D)  equilibrium employment 
A)  Keynesian labor 
B)  Socialist workers' 
C)  rational expectations 
D)  equilibrium employment

Question 7

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

Accepted Answer

A)  anticipated policy changes have a significant effect on real output. 
B)  unanticipated policy changes have no effect on real output. 
C)  anticipated policy changes have no effect on real output. 
D)  the effect that policy changes have on real output is the same, regardless of whether those changes are anticipated or not. 
A)  anticipated policy changes have a significant effect on real output. 
B)  unanticipated policy changes have no effect on real output. 
C)  anticipated policy changes have no effect on real output. 
D)  the effect that policy changes have on real output is the same, regardless of whether those changes are anticipated or not.

Question 8

If the money supply is measured using ________, fluctuations in velocity are ________.

Accepted Answer

A)  M1 rather than M2; increased 
B)  M1 rather than M2; reduced 
C)  M1 rather than M2; eliminated 
D)  M2 rather than M1; eliminated 
A)  M1 rather than M2; increased 
B)  M1 rather than M2; reduced 
C)  M1 rather than M2; eliminated 
D)  M2 rather than M1; eliminated

Question 9

Velocity is not constant if

Accepted Answer

A)  the money supply does not depend on the interest rate. 
B)  the supply of money depends on the interest rate. 
C)  the price level increases as aggregate output increases. 
D)  the demand for money depends on the interest rate. 
A)  the money supply does not depend on the interest rate. 
B)  the supply of money depends on the interest rate. 
C)  the price level increases as aggregate output increases. 
D)  the demand for money depends on the interest rate.

Question 10

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

Accepted Answer

A)  money demand; inflation rate 
B)  money demand; money supply 
C)  money supply; price level 
D)  money supply; money demand 
A)  money demand; inflation rate 
B)  money demand; money supply 
C)  money supply; price level 
D)  money supply; money demand

Question 11

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

Accepted Answer

A)  decrease its production. 
B)  increase its production. 
C)  keep its production level constant. 
D)  increase expectations regarding its own output price. 
A)  decrease its production. 
B)  increase its production. 
C)  keep its production level constant. 
D)  increase expectations regarding its own output price.

Question 12

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 13

________ economics includes the idea that labor markets don't always clear due to wage rigidities.

Accepted Answer

A)  Classical 
B)  New Classical 
C)  Monetarist 
D)  Keynesian 
A)  Classical 
B)  New Classical 
C)  Monetarist 
D)  Keynesian

Question 14

If GDP increases and the stock of money increases, the income velocity of money will definitely increase.

Accepted Answer

A) True 
 B)False

Question 15

People are said to have ________ if they use all available information in forming their expectations.

Accepted Answer

A)  rational expectations 
B)  insider information 
C)  unbiased prognostication 
D)  psychic insight 
A)  rational expectations 
B)  insider information 
C)  unbiased prognostication 
D)  psychic insight

Question 16

Refer to Figure 17.3. 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.

Question 17

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 18

If income is $20 billion, the price level is 5, and the stock of money is $10 billion, what is the income velocity of money?

Accepted Answer

A)  0.4 
B)  2.5 
C)  4 
D)  10 
A)  0.4 
B)  2.5 
C)  4 
D)  10

Question 19

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 20

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.

Exam 17: Alternative Views in Macroeconomics

According to the real business cycle theory, ________ are responsible for economic growth.

If income is $60 billion, the price level is 6, and the stock of money is $36 billion, what is the velocity of money?

The argument in favor of rational expectations is that

The ________ hypothesis suggests that errors in forecasting future inflation rates are due to random, unpredictable events.

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

According to the ________ hypothesis, unemployment may occur, and if it does, it will be temporary.

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

If the money supply is measured using ________, fluctuations in velocity are ________.

Velocity is not constant if

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

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

According to the rational expectations hypothesis, unemployment

________ economics includes the idea that labor markets don't always clear due to wage rigidities.

If GDP increases and the stock of money increases, the income velocity of money will definitely increase.

People are said to have ________ if they use all available information in forming their expectations.

Refer to Figure 17.3. Suppose the economy is at Point A. According to the new classical theory, an anticipated increase in aggregate demand

Monetarists believe

If income is $20 billion, the price level is 5, and the stock of money is $10 billion, what is the income velocity of money?

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

People are said to have rational expectations if they

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

If the money supply is measured using , fluctuations in velocity are .

The quantity theory of money implies that a 7% increase in the will eventually cause a 7% increase in the .