Question 1

The primary argument against the rational-expectations assumption is that

Accepted Answer

A)  the costs of formulating rational expectations are very low. 
B)  it requires households and firms to know too much. 
C)  it assumes that unexploited opportunities for profit persist in the economy. 
D)  people expect certain outcomes from the government's policy actions. 
A)  the costs of formulating rational expectations are very low. 
B)  it requires households and firms to know too much. 
C)  it assumes that unexploited opportunities for profit persist in the economy. 
D)  people expect certain outcomes from the government's policy actions.

Question 2

A velocity of 4 means money stays with each owner for an average of 4 years.

Accepted Answer

A) True 
 B)False

Question 3

With the Lucas supply function, a price surprise means

Accepted Answer

A)  actual price is greater than expected price. 
B)  actual price is less than expected price. 
C)  actual price equals expected price. 
D)  actual price is either greater than or lower than expected price. 
A)  actual price is greater than expected price. 
B)  actual price is less than expected price. 
C)  actual price equals expected price. 
D)  actual price is either greater than or lower than expected price.

Question 4

According to new classical economists, if the Fed increases the money supply after it announces it, output ________ and the price level ________.

Accepted Answer

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

Question 5

If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

Accepted Answer

A)  $2.5 billion 
B)  $10 billion 
C)  $40 billion 
D)  $160 billion 
A)  $2.5 billion 
B)  $10 billion 
C)  $40 billion 
D)  $160 billion

Question 6

The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced monetary policy change will lead to

Accepted Answer

A)  a positive price surprise. 
B)  no price surprise. 
C)  a negative price surprise. 
D)  a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy. 
A)  a positive price surprise. 
B)  no price surprise. 
C)  a negative price surprise. 
D)  a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy.

Question 7

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

Accepted Answer

A)  are always correct. 
B)  consistently overestimate the actual rate of inflation in the future. 
C)  are correct on average, but are subject to errors that are distributed randomly. 
D)  consistently underestimate the actual rate of inflation in the future. 
A)  are always correct. 
B)  consistently overestimate the actual rate of inflation in the future. 
C)  are correct on average, but are subject to errors that are distributed randomly. 
D)  consistently underestimate the actual rate of inflation in the future.

Question 8

The quantity theory of money can be written as

Accepted Answer

A)  MV = PY. 
B)  M/V = PY. 
C)  MV = P/Y. 
D)  MP = VP. 
A)  MV = PY. 
B)  M/V = PY. 
C)  MV = P/Y. 
D)  MP = VP.

Question 9

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, the actual price level

Accepted Answer

A)  will be impacted more than the expected price level. 
B)  will be impacted less than the expected price level. 
C)  and the expected price level will be impacted in the same way. 
D)  will be impacted but the expected price level will not. 
A)  will be impacted more than the expected price level. 
B)  will be impacted less than the expected price level. 
C)  and the expected price level will be impacted in the same way. 
D)  will be impacted but the expected price level will not.

Question 10

When expectations are rational, prices and wages are, on average, set at market-clearing levels.

Accepted Answer

A) True 
 B)False

Question 11

The Economic Recovery Tax Act of 1981 ________ in a way that was designed to stimulate capital investment.

Accepted Answer

A)  eliminated personal taxes 
B)  cut corporate taxes 
C)  increased government spending 
D)  all of the above 
A)  eliminated personal taxes 
B)  cut corporate taxes 
C)  increased government spending 
D)  all of the above

Question 12

The Economic Recovery Tax Act of 1981 allowed firms to ________ their capital at a ________ for tax purposes. This decreased tax liability and encouraged investment.

Accepted Answer

A)  depreciate; slow and consistent rate 
B)  depreciate; very rapid rate 
C)  appreciate; slow and consistent rate 
D)  appreciate; very rapid rate 
A)  depreciate; slow and consistent rate 
B)  depreciate; very rapid rate 
C)  appreciate; slow and consistent rate 
D)  appreciate; very rapid rate

Question 13

If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

Accepted Answer

A)  0.125. 
B)  8. 
C)  12. 
D)  20. 
A)  0.125. 
B)  8. 
C)  12. 
D)  20.

Question 14

If real output is $10 billion, the price level is 3, and velocity is 6, what is the stock of money?

Accepted Answer

A)  $1.8 billion 
B)  $5 billion 
C)  $19 billion 
D)  $180 billion 
A)  $1.8 billion 
B)  $5 billion 
C)  $19 billion 
D)  $180 billion

Question 15

John Maynard Keynes was the author of

Accepted Answer

A)  The Communist Manifesto. 
B)  The Wealth of Nations. 
C)  Eat the Rich: A Treatise on Economics. 
D)  The General Theory of Employment, Interest, and Money. 
A)  The Communist Manifesto. 
B)  The Wealth of Nations. 
C)  Eat the Rich: A Treatise on Economics. 
D)  The General Theory of Employment, Interest, and Money.

Question 16

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 ________, a(n) ________ monetary policy in the short run and after all the adjustments have been made increases equilibrium output above Y1.

Accepted Answer

A)  Keynes; contractionary 
B)  Keynes; expansionary 
C)  the new classicals; contractionary 
D)  the new classicals; expansionary 
A)  Keynes; contractionary 
B)  Keynes; expansionary 
C)  the new classicals; contractionary 
D)  the new classicals; expansionary

Question 17

in economics, the links between the money market and the goods market 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 18

The velocity of money ________ be affected by how frequently workers are paid, and ________ be affected by the development of new financial instruments, such as interest-bearing checking accounts.

Accepted Answer

A)  can; can 
B)  can; cannot 
C)  cannot; can 
D)  cannot; cannot 
A)  can; can 
B)  can; cannot 
C)  cannot; can 
D)  cannot; cannot

Question 19

The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.

Accepted Answer

A)  in combination with; unanticipated 
B)  in combination with; announced 
C)  in contrast to; unanticipated 
D)  in contrast to; announced 
A)  in combination with; unanticipated 
B)  in combination with; announced 
C)  in contrast to; unanticipated 
D)  in contrast to; announced

Question 20

According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.

Accepted Answer

A)  more; higher 
B)  the same; lower 
C)  the same; higher 
D)  less; higher 
A)  more; higher 
B)  the same; lower 
C)  the same; higher 
D)  less; higher

Exam 17: Alternative Views in Macroeconomics

The primary argument against the rational-expectations assumption is that

A velocity of 4 means money stays with each owner for an average of 4 years.

With the Lucas supply function, a price surprise means

According to new classical economists, if the Fed increases the money supply after it announces it, output ________ and the price level ________.

If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced monetary policy change will lead to

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

The quantity theory of money can be written as

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, the actual price level

When expectations are rational, prices and wages are, on average, set at market-clearing levels.

The Economic Recovery Tax Act of 1981 ________ in a way that was designed to stimulate capital investment.

The Economic Recovery Tax Act of 1981 allowed firms to ________ their capital at a ________ for tax purposes. This decreased tax liability and encouraged investment.

If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

If real output is $10 billion, the price level is 3, and velocity is 6, what is the stock of money?

John Maynard Keynes was the author of

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 ________, a(n) ________ monetary policy in the short run and after all the adjustments have been made increases equilibrium output above Y1.

in economics, the links between the money market and the goods market was first emphasized by

The velocity of money ________ be affected by how frequently workers are paid, and ________ be affected by the development of new financial instruments, such as interest-bearing checking accounts.

The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.

According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.

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 increases the money supply after it announces it, output and the price level .

The Economic Recovery Tax Act of 1981 allowed firms to their capital at a for tax purposes. This decreased tax liability and encouraged investment.

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 , a(n) monetary policy in the short run and after all the adjustments have been made increases equilibrium output above Y₁.

The velocity of money be affected by how frequently workers are paid, and be affected by the development of new financial instruments, such as interest-bearing checking accounts.

The Lucas supply function, the assumption that expectations are rational, implies that policy changes will have no effect on real output.

According to the Lucas supply function, the economy will produce output when prices are unexpectedly than when prices are at their expected level.