Question 1

In a sense, Keynesian economics is the foundation of all macroeconomics.

Accepted Answer

A) True 
 B)False

Question 2

In the fourth quarter of 2014, the value of the velocity of money in the United States was approximately

Accepted Answer

A)  0.3. 
B)  5.3. 
C)  9.8. 
D)  13.0. 
A)  0.3. 
B)  5.3. 
C)  9.8. 
D)  13.0.

Question 3

Because there may be a time lag between a change in the money supply and its effects on nominal GDP, it is ________ to test whether the velocity of money is constant over time.

Accepted Answer

A)  easy 
B)  difficult 
C)  impossible 
D)  pointless 
A)  easy 
B)  difficult 
C)  impossible 
D)  pointless

Question 4

According to the real business cycle theory, technological advances

Accepted Answer

A)  increase the marginal product of labor, which causes real wages and output to decline. 
B)  decrease the marginal product of labor, which causes real wages and output to increase. 
C)  increase the marginal product of labor, which causes real wages to increase and output to decline. 
D)  increase the marginal product of labor, which causes real wages and output to increase. 
A)  increase the marginal product of labor, which causes real wages and output to decline. 
B)  decrease the marginal product of labor, which causes real wages and output to increase. 
C)  increase the marginal product of labor, which causes real wages to increase and output to decline. 
D)  increase the marginal product of labor, which causes real wages and output to increase.

Question 5

The Laffer curve shows the relationship between

Accepted Answer

A)  aggregate supply and aggregate demand. 
B)  unemployment and inflation. 
C)  consumer spending and business spending. 
D)  tax rates and tax revenues. 
A)  aggregate supply and aggregate demand. 
B)  unemployment and inflation. 
C)  consumer spending and business spending. 
D)  tax rates and tax revenues.

Question 6

The problem with the traditional macroeconomic treatment of expectations of inflation is that

Accepted Answer

A)  the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people. 
B)  the model assumes that individuals will merely guess at what the inflation rate will be. 
C)  in the model people always assume that inflation will be zero. 
D)  the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking. 
A)  the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people. 
B)  the model assumes that individuals will merely guess at what the inflation rate will be. 
C)  in the model people always assume that inflation will be zero. 
D)  the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

Question 7

The Economic Recovery Tax Act of 1981 stipulated that individual income tax be cut ________ over three years.

Accepted Answer

A)  5% 
B)  15% 
C)  25% 
D)  50% 
A)  5% 
B)  15% 
C)  25% 
D)  50%

Question 8

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 9

There is very little disagreement when it comes to macroeconomic theory.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  real output decreases. 
B)  real output increases. 
C)  real output must be at a maximum. 
D)  real output must be at a minimum. 
A)  real output decreases. 
B)  real output increases. 
C)  real output must be at a maximum. 
D)  real output must be at a minimum.

Question 11

If the stock of money is $50 billion, velocity is 4, and real output is $25 billion, what is the price level?

Accepted Answer

A)  0.5 
B)  2 
C)  4 
D)  8 
A)  0.5 
B)  2 
C)  4 
D)  8

Question 12

According to the Lucas supply function, ________ will have an effect on real output.

Accepted Answer

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

Question 13

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 Keynes, an expansionary monetary policy in the long run and after all the adjustments have been made

Accepted Answer

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The Lucas supply function, real business cycle theory, and the new Keynesian model all assume rational expectations.

Accepted Answer

A) True 
 B)False

Question 16

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

Accepted Answer

A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes. 
A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes.

Question 17

A rational-expectations theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

Accepted Answer

A) True 
 B)False

Question 18

If nominal GDP is $500 billion, velocity is $500 billion divided by the stock of money.

Accepted Answer

A) True 
 B)False

Question 19

In economics, the concept of aggregate demand was first emphasized by

Accepted Answer

A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes. 
A)  rational expectation theorists. 
B)  supply-side economists. 
C)  monetarists. 
D)  John Maynard Keynes.

Question 20

Monetarists argue that ________ should grow at a rate equal to the average growth of real output.

Accepted Answer

A)  the money supply 
B)  per-capita nominal GDP 
C)  the velocity of money 
D)  the personal income tax rate 
A)  the money supply 
B)  per-capita nominal GDP 
C)  the velocity of money 
D)  the personal income tax rate

Exam 17: Alternative Views in Macroeconomics

In a sense, Keynesian economics is the foundation of all macroeconomics.

In the fourth quarter of 2014, the value of the velocity of money in the United States was approximately

Because there may be a time lag between a change in the money supply and its effects on nominal GDP, it is ________ to test whether the velocity of money is constant over time.

According to the real business cycle theory, technological advances

The Laffer curve shows the relationship between

The problem with the traditional macroeconomic treatment of expectations of inflation is that

The Economic Recovery Tax Act of 1981 stipulated that individual income tax be cut ________ over three years.

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

There is very little disagreement when it comes to macroeconomic theory.

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

If the stock of money is $50 billion, velocity is 4, and real output is $25 billion, what is the price level?

According to the Lucas supply function, ________ will have an effect on real output.

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 Keynes, an expansionary monetary policy in the long run and after all the adjustments have been made

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

The Lucas supply function, real business cycle theory, and the new Keynesian model all assume rational expectations.

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

A rational-expectations theorist argues for increased government involvement in the economy to ensure stable price and employment growth.

If nominal GDP is $500 billion, velocity is $500 billion divided by the stock of money.

In economics, the concept of aggregate demand was first emphasized by

Monetarists argue that ________ should grow at a rate equal to the average growth of real output.

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

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