Question 1

Who wrote the General Theory of Employment, Interest, and Money?

Accepted Answer

A)  Adam Smith 
B)  David Ricardo 
C)  Milton Friedman 
D)  John Maynard Keynes 
A)  Adam Smith 
B)  David Ricardo 
C)  Milton Friedman 
D)  John Maynard Keynes

Question 2

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

Accepted Answer

A)  will have no effect on the actual price level. 
B)  will have no effect on real output. 
C)  will have no effect on the expected price level. 
D)  will have no effect on nominal output. 
A)  will have no effect on the actual price level. 
B)  will have no effect on real output. 
C)  will have no effect on the expected price level. 
D)  will have no effect on nominal output.

Question 3

Which of the following is assumed constant in the quantity theory of money?

Accepted Answer

A)  money supply 
B)  velocity 
C)  the price level 
D)  output 
A)  money supply 
B)  velocity 
C)  the price level 
D)  output

Question 4

Traditional macroeconomic models assume that people's expectations of inflation

Accepted Answer

A)  are determined by looking at all the relevant information and forecasting the future inflation rate. 
B)  will be zero in the future. 
C)  are set by assuming a continuation of present inflation. 
D)  are set by merely guessing what the future inflation rate will be. 
A)  are determined by looking at all the relevant information and forecasting the future inflation rate. 
B)  will be zero in the future. 
C)  are set by assuming a continuation of present inflation. 
D)  are set by merely guessing what the future inflation rate will be.

Question 5

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

Accepted Answer

A)  not change output. 
B)  decrease output, but never increase output. 
C)  either increase or decrease output, depending on the type of monetary policy change. 
D)  increase output, but never decrease output. 
A)  not change output. 
B)  decrease output, but never increase output. 
C)  either increase or decrease output, depending on the type of monetary policy change. 
D)  increase output, but never decrease output.

Question 6

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

Accepted Answer

A)  a 3% increase in real GDP. 
B)  a 3% increase in disposable income. 
C)  a 3% increase in the price level. 
D)  a 3% decrease in the unemployment rate. 
A)  a 3% increase in real GDP. 
B)  a 3% increase in disposable income. 
C)  a 3% increase in the price level. 
D)  a 3% decrease in the unemployment rate.

Question 7

If real output is $25 billion, the price level is 5, and velocity is 5, what is the stock of money?

Accepted Answer

A)  $1 billion 
B)  $10 billion 
C)  $25 billion 
D)  $625 billion 
A)  $1 billion 
B)  $10 billion 
C)  $25 billion 
D)  $625 billion

Question 8

________ believe that real output is determined by aggregate supply.

Accepted Answer

A)  Keynesians 
B)  Socialists 
C)  Communists 
D)  Monetarists 
A)  Keynesians 
B)  Socialists 
C)  Communists 
D)  Monetarists

Question 9

Over the past few decades, Milton Friedman was the leading spokesman for

Accepted Answer

A)  new classical theory. 
B)  monetarism. 
C)  Keynesianism. 
D)  the rational expectations theory. 
A)  new classical theory. 
B)  monetarism. 
C)  Keynesianism. 
D)  the rational expectations theory.

Question 10

John Maynard Keynes believed that the government should play a role in fighting both unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 11

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place, the economy began to expand. These critics, though, argue that the expansion did not result from the supply-side policies, but rather from

Accepted Answer

A)  the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B)  the self-correcting nature of the economy. 
C)  the increases in government spending that occurred at the same time the tax cuts became effective. 
D)  a very large increase in the demand for U.S. exports at the same time that U.S. imports fell dramatically. 
A)  the fact that the Federal Reserve dramatically increased the money supply at the same time that the tax cuts became effective. 
B)  the self-correcting nature of the economy. 
C)  the increases in government spending that occurred at the same time the tax cuts became effective. 
D)  a very large increase in the demand for U.S. exports at the same time that U.S. imports fell dramatically.

Question 12

Supply side economists think the equilibrium output is determined by the supply of money.

Accepted Answer

A) True 
 B)False

Question 13

It is ________ to empirically test alternative macroeconomic models against one another ________ macroeconomic models differ in ways that are hard to standardize.

Accepted Answer

A)  pointless; because 
B)  difficult; because 
C)  relatively easy; even though 
D)  impossible; because 
A)  pointless; because 
B)  difficult; because 
C)  relatively easy; even though 
D)  impossible; because

Question 14

If relevant information can be obtained at no cost, people are ________ when they fail to use all available information given that there are usually ________ to making a wrong forecast.

Accepted Answer

A)  behaving rationally; costs 
B)  behaving rationally; no costs 
C)  not behaving rationally; costs 
D)  not behaving rationally; no costs 
A)  behaving rationally; costs 
B)  behaving rationally; no costs 
C)  not behaving rationally; costs 
D)  not behaving rationally; no costs

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

If the demand for money depends on the interest rate, velocity is

Accepted Answer

A)  not constant, and the quantity theory of money does hold. 
B)  not constant, and the quantity theory of money does not hold. 
C)  constant, and the quantity theory of money does not hold. 
D)  constant, and the quantity theory of money does hold. 
A)  not constant, and the quantity theory of money does hold. 
B)  not constant, and the quantity theory of money does not hold. 
C)  constant, and the quantity theory of money does not hold. 
D)  constant, and the quantity theory of money does hold.

Question 17

Reduction of government regulation is a stimulative aggregate supply policy.

Accepted Answer

A) True 
 B)False

Question 18

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Accepted Answer

A) True 
 B)False

Question 19

Refer to Figure 17.3. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

Accepted Answer

A)  leaves the economy at Point A. 
B)  moves the economy to Point B. 
C)  moves the economy to Point C. 
D)  moves the economy to Point D. 
A)  leaves the economy at Point A. 
B)  moves the economy to Point B. 
C)  moves the economy to Point C. 
D)  moves the economy to Point D.

Question 20

Which of the following is true?

Accepted Answer

A)  Measuring money supply using M2 reduces fluctuations in velocity. 
B)  Measuring money supply using M1 reduces fluctuations in velocity. 
C)  Measuring money supply using M2 increases fluctuations in velocity. 
D)  Velocity does not depend on which money supply measurement we use. 
A)  Measuring money supply using M2 reduces fluctuations in velocity. 
B)  Measuring money supply using M1 reduces fluctuations in velocity. 
C)  Measuring money supply using M2 increases fluctuations in velocity. 
D)  Velocity does not depend on which money supply measurement we use.

Exam 17: Alternative Views in Macroeconomics

Who wrote the General Theory of Employment, Interest, and Money?

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

Which of the following is assumed constant in the quantity theory of money?

Traditional macroeconomic models assume that people's expectations of inflation

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

The quantity theory of money implies that a 3% increase in the money supply will eventually cause

If real output is $25 billion, the price level is 5, and velocity is 5, what is the stock of money?

________ believe that real output is determined by aggregate supply.

Over the past few decades, Milton Friedman was the leading spokesman for

John Maynard Keynes believed that the government should play a role in fighting both unemployment and inflation.

Critics of supply-side economics agree that shortly after the Reagan tax cuts were put into place, the economy began to expand. These critics, though, argue that the expansion did not result from the supply-side policies, but rather from

Supply side economists think the equilibrium output is determined by the supply of money.

It is ________ to empirically test alternative macroeconomic models against one another ________ macroeconomic models differ in ways that are hard to standardize.

If relevant information can be obtained at no cost, people are ________ when they fail to use all available information given that there are usually ________ to making a wrong forecast.

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

If the demand for money depends on the interest rate, velocity is

Reduction of government regulation is a stimulative aggregate supply policy.

The Laffer curve shows the relationship between the tax rate and the inflation rate.

Refer to Figure 17.3. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

Which of the following is true?

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

It is to empirically test alternative macroeconomic models against one another macroeconomic models differ in ways that are hard to standardize.

If relevant information can be obtained at no cost, people are when they fail to use all available information given that there are usually to making a wrong forecast.