Question 1

The equation for the quantity theory of money can be written as (M x Y = P x V).

Accepted Answer

A) True 
 B)False

Question 2

According to the Lucas supply function, the economy will produce more output when

Accepted Answer

A)  prices are unexpectedly higher than when prices are at their expected level. 
B)  wages are below the expected level. 
C)  prices are unexpectedly lower than when prices are at their expected level. 
D)  prices are exactly equal to the expected level. 
A)  prices are unexpectedly higher than when prices are at their expected level. 
B)  wages are below the expected level. 
C)  prices are unexpectedly lower than when prices are at their expected level. 
D)  prices are exactly equal to the expected level.

Question 3

According to the Lucas supply function, if people's expectations are on target, then the amount of output they produce

Accepted Answer

A)  is not related to the price level. 
B)  is directly related to the price level. 
C)  will always be below potential GDP. 
D)  will always be above potential GDP. 
A)  is not related to the price level. 
B)  is directly related to the price level. 
C)  will always be below potential GDP. 
D)  will always be above potential GDP.

Question 4

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

Accepted Answer

A)  increasing; increasing 
B)  decreasing; increasing 
C)  increasing; decreasing 
D)  none of the above 
A)  increasing; increasing 
B)  decreasing; increasing 
C)  increasing; decreasing 
D)  none of the above

Question 5

Competing macroeconomic models may be hard to test because people may change how they react when economic policies are changed.

Accepted Answer

A) True 
 B)False

Question 6

Assume that the demand for money depends on the interest rate. An increase in the money supply will cause the interest rate to ________, the quantity demanded of money to ________, and the velocity of money to ________.

Accepted Answer

A)  decrease; decrease; decrease 
B)  increase; decrease; increase 
C)  decrease; increase; decrease 
D)  decrease; increase; increase 
A)  decrease; decrease; decrease 
B)  increase; decrease; increase 
C)  decrease; increase; decrease 
D)  decrease; increase; increase

Question 7

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 increase 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 8

Which of the following represents the Lucas supply function?

Accepted Answer

A)  Y = f(Pe - P) 
B)  Y = f(Pe + P) 
C)  Y = f(P + Pe) 
D)  Y = f(P - Pe) 
A)  Y = f(Pe - P) 
B)  Y = f(Pe + P) 
C)  Y = f(P + Pe) 
D)  Y = f(P - Pe)

Question 9

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 10

The leading spokesman for monetarism over the last few decades was

Accepted Answer

A)  John Kenneth Galbraith. 
B)  Milton Friedman. 
C)  Robert E. Lucas. 
D)  Paul Samuelson. 
A)  John Kenneth Galbraith. 
B)  Milton Friedman. 
C)  Robert E. Lucas. 
D)  Paul Samuelson.

Question 11

The velocity of money is the ratio of ________ to ________.

Accepted Answer

A)  real GDP; the money demand 
B)  nominal GDP; the stock of money 
C)  the money supply; the asset demand for money 
D)  consumption; investment 
A)  real GDP; the money demand 
B)  nominal GDP; the stock of money 
C)  the money supply; the asset demand for money 
D)  consumption; investment

Question 12

The Lucas supply function states that real output can 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 13

Fluctuations in velocity tend to increase when measured using M1 instead of M2.

Accepted Answer

A) True 
 B)False

Question 14

According to the Laffer curve, a decrease in the tax rate may decrease tax revenues.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours.

Accepted Answer

A)  positive; correctly; risen 
B)  negative; correctly; fallen 
C)  negative; incorrectly; risen 
D)  positive; incorrectly; risen 
A)  positive; correctly; risen 
B)  negative; correctly; fallen 
C)  negative; incorrectly; risen 
D)  positive; incorrectly; risen

Question 16

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

Accepted Answer

A)  negative technology shocks 
B)  positive technology shocks 
C)  increases in the money supply 
D)  decreases in the money supply 
A)  negative technology shocks 
B)  positive technology shocks 
C)  increases in the money supply 
D)  decreases in the money supply

Question 17

SInce 1950, the United States has experienced about 20 business cycles.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  will always be at market-clearing levels. 
B)  will, on average, be set at market-clearing levels. 
C)  will always be above market-clearing levels. 
D)  will never be set at market-clearing levels. 
A)  will always be at market-clearing levels. 
B)  will, on average, be set at market-clearing levels. 
C)  will always be above market-clearing levels. 
D)  will never be set at market-clearing levels.

Question 19

According to the Laffer curve, an increase in the tax rate may decrease tax revenues.

Accepted Answer

A) True 
 B)False

Question 20

A velocity of ________ means money changes hands, on average, every 4 months.

Accepted Answer

A)  0.25 
B)  1.25 
C)  3 
D)  4 
A)  0.25 
B)  1.25 
C)  3 
D)  4

Exam 17: Alternative Views in Macroeconomics

The equation for the quantity theory of money can be written as (M x Y = P x V).

According to the Lucas supply function, the economy will produce more output when

According to the Lucas supply function, if people's expectations are on target, then the amount of output they produce

A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation.

Competing macroeconomic models may be hard to test because people may change how they react when economic policies are changed.

Assume that the demand for money depends on the interest rate. An increase in the money supply will cause the interest rate to ________, the quantity demanded of money to ________, and the velocity of money to ________.

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 increase in government spending would not change AD or AS.

Which of the following represents the Lucas supply function?

According to monetarists

The leading spokesman for monetarism over the last few decades was

The velocity of money is the ratio of ________ to ________.

The Lucas supply function states that real output can change from its fixed level

Fluctuations in velocity tend to increase when measured using M1 instead of M2.

According to the Laffer curve, a decrease in the tax rate may decrease tax revenues.

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours.

According to the real business cycle theory, ________ decrease the marginal product of labor, which causes real wages and output to decrease.

SInce 1950, the United States has experienced about 20 business cycles.

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

According to the Laffer curve, an increase in the tax rate may decrease tax revenues.

A velocity of ________ means money changes hands, on average, every 4 months.

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

A monetarist would advocate money supply during recessions and money supply during periods of high inflation.

Assume that the demand for money depends on the interest rate. An increase in the money supply will cause the interest rate to , the quantity demanded of money to , and the velocity of money to .

The velocity of money is the ratio of to .

Assume that the income effect dominates the substitution effect. When workers experience a price surprise, they perceive that their real wage rate has , which leads them to work fewer hours.