Question 1

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

Accepted Answer

A)  encourage firms to hire more workers. 
B)  stimulate capital investment. 
C)  encourage firms to use fewer nonrenewable resources. 
D)  reduce corporate profits. 
A)  encourage firms to hire more workers. 
B)  stimulate capital investment. 
C)  encourage firms to use fewer nonrenewable resources. 
D)  reduce corporate profits.

Question 2

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

Accepted Answer

A)  neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B)  an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output. 
C)  both anticipated monetary and fiscal policy changes will affect real output. 
D)  an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output. 
A)  neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output. 
B)  an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output. 
C)  both anticipated monetary and fiscal policy changes will affect real output. 
D)  an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output.

Question 3

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 4

A monetarist would advocate decreasing the growth rate of money supply during a recession.

Accepted Answer

A) True 
 B)False

Question 5

A monetarist would advocate increasing the growth rate of money during an inflation.

Accepted Answer

A) True 
 B)False

Question 6

The implicit assumption behind the Economic Recovery Tax Act of 1981, which cut the individual income tax rate by 25% over three years, was that

Accepted Answer

A)  the economy was on the negatively sloped portion of the Laffer curve. 
B)  the economy was on the positively sloped portion of the Laffer curve. 
C)  tax rate reductions will stimulate demand in the economy and move the economy to full employment. 
D)  tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing. 
A)  the economy was on the negatively sloped portion of the Laffer curve. 
B)  the economy was on the positively sloped portion of the Laffer curve. 
C)  tax rate reductions will stimulate demand in the economy and move the economy to full employment. 
D)  tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing.

Question 7

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

Accepted Answer

A)  the change in real output will be positive. 
B)  the change in real output will be negative. 
C)  there will be no change in real output. 
D)  Both A and B are possible, depending on they type of monetary policy change that has been announced. 
A)  the change in real output will be positive. 
B)  the change in real output will be negative. 
C)  there will be no change in real output. 
D)  Both A and B are possible, depending on they type of monetary policy change that has been announced.

Question 8

Which of the following would be considered a supply-side policy?

Accepted Answer

A)  an increase in the minimum wage that would cause consumer spending to increase 
B)  an increase in government spending that would lead to increased aggregate demand 
C)  investment tax credits for businesses to encourage investment 
D)  a decrease in the growth of the money supply 
A)  an increase in the minimum wage that would cause consumer spending to increase 
B)  an increase in government spending that would lead to increased aggregate demand 
C)  investment tax credits for businesses to encourage investment 
D)  a decrease in the growth of the money supply

Question 9

Keynes believed which of the following?

Accepted Answer

A)  The government has a role to play in fighting inflation, but not in fighting unemployment. 
B)  The government has a role to play in fighting unemployment, but not in fighting inflation. 
C)  The government does not have a role to play in fighting inflation or unemployment. 
D)  The government has a role to play in fighting inflation and unemployment. 
A)  The government has a role to play in fighting inflation, but not in fighting unemployment. 
B)  The government has a role to play in fighting unemployment, but not in fighting inflation. 
C)  The government does not have a role to play in fighting inflation or unemployment. 
D)  The government has a role to play in fighting inflation and unemployment.

Question 10

The hypothesis that people know the "true model" of the economy and that they use this model to form their expectations of the future is the

Accepted Answer

A)  real business cycle hypothesis. 
B)  Lucas supply function hypothesis. 
C)  rational-expectations hypothesis. 
D)  Laffer hypothesis. 
A)  real business cycle hypothesis. 
B)  Lucas supply function hypothesis. 
C)  rational-expectations hypothesis. 
D)  Laffer hypothesis.

Question 11

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 12

The velocity of money is the number of times a dollar bill changes hands, on average, during a year.

Accepted Answer

A) True 
 B)False

Question 13

The velocity of money is 4. If nominal GDP is $1,200 billion then the stock of money

Accepted Answer

A)  is $300 billion. 
B)  is $400 billion. 
C)  is $500 billion. 
D)  is $4,800 billion. 
A)  is $300 billion. 
B)  is $400 billion. 
C)  is $500 billion. 
D)  is $4,800 billion.

Question 14

Most monetarists advocate an activist monetary stabilization policy.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the information provided in Figure 17.1 below to answer the questions that follow.   Figure 17.1
-Refer to Figure 17.1. If the economy moves from Point B to Point C, a ________ in tax rates will ________ tax revenue.

Accepted Answer

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

Question 16

Those who believe in the rational expectations hypothesis advocate

Accepted Answer

A)  active fiscal policy during recessions. 
B)  active monetary policy during recessions. 
C)  active monetary policy during inflationary periods only. 
D)  no policy intervention. 
A)  active fiscal policy during recessions. 
B)  active monetary policy during recessions. 
C)  active monetary policy during inflationary periods only. 
D)  no policy intervention.

Question 17

If the stock of money is $40 billion, velocity is 3, and real output is $60 billion, what is the price level?

Accepted Answer

A)  0.5 
B)  2 
C)  2.5 
D)  4 
A)  0.5 
B)  2 
C)  2.5 
D)  4

Question 18

Keynesian economics includes the idea that

Accepted Answer

A)  economic policies are ineffective. 
B)  the economy is basically stable. 
C)  prices adjust to clear the markets. 
D)  labor markets don't always clear due to wage rigidities. 
A)  economic policies are ineffective. 
B)  the economy is basically stable. 
C)  prices adjust to clear the markets. 
D)  labor markets don't always clear due to wage rigidities.

Question 19

According to the Lucas supply function, when the substitution effect dominates the income effect, workers who experience a ________ price surprise will work ________ hours.

Accepted Answer

A)  positive; more 
B)  positive; the same number of 
C)  negative; more 
D)  negative; the same number of 
A)  positive; more 
B)  positive; the same number of 
C)  negative; more 
D)  negative; the same number of

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 17: Alternative Views in Macroeconomics

The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to

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

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

A monetarist would advocate decreasing the growth rate of money supply during a recession.

A monetarist would advocate increasing the growth rate of money during an inflation.

The implicit assumption behind the Economic Recovery Tax Act of 1981, which cut the individual income tax rate by 25% over three years, was that

The Lucas supply function, in combination with the assumption that expectations are rational, implies that if a monetary policy change is announced to the public,

Which of the following would be considered a supply-side policy?

Keynes believed which of the following?

The hypothesis that people know the "true model" of the economy and that they use this model to form their expectations of the future is the

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

The velocity of money is the number of times a dollar bill changes hands, on average, during a year.

The velocity of money is 4. If nominal GDP is $1,200 billion then the stock of money

Most monetarists advocate an activist monetary stabilization policy.

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1 -Refer to Figure 17.1. If the economy moves from Point B to Point C, a ________ in tax rates will ________ tax revenue.

Those who believe in the rational expectations hypothesis advocate

If the stock of money is $40 billion, velocity is 3, and real output is $60 billion, what is the price level?

Keynesian economics includes the idea that

According to the Lucas supply function, when the substitution effect dominates the income effect, workers who experience a ________ price surprise will work ________ hours.

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

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

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1 -Refer to Figure 17.1. If the economy moves from Point B to Point C, a in tax rates will tax revenue.

According to the Lucas supply function, when the substitution effect dominates the income effect, workers who experience a price surprise will work hours.