Exam 17: Alternative Views in Macroeconomics

Too much data is available to test macroeconomic models.

According to the Laffer curve,

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1 -Refer to Figure 17.1. A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

The Laffer curve has proven to be accurate for tax rates above 10 percent.

The Lucas supply function implies that only anticipated policy changes have an effect on real output.

The Fed increases money supply. In this case, the time lag problem of monetary policy may

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 the new classical economists, under rational expectations an expected decrease in taxes would

Most monetarists ________ advocate expanding the money supply during bad times and ________ advocate slowing the growth of the money supply during good times.

According to the Lucas supply function, in combination with the assumption that expectations are rational, change in government policy can affect real output only if

Most monetarists blame much of the instability in the economy on

Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of

The velocity of money is equal to

The economic view that retains the assumption of rational expectations but drops the assumption of completely flexible prices and wages is called

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

According to the rational expectations hypothesis, unpredictable shocks explain the existence of

The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the

According to the Laffer curve, if the economy is on the positively sloped section of the curve, then

Keynesians believe that the economy will never will reach a full employment equilibrium.

Real business cycle theory assumes complete price and wage flexibility.

According to the rational-expectation theory, an unanticipated increase in money supply increases both output and prices.