Deck 17: Alternative Views in Macroeconomics

Question 1

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

Answer 1

False

Question 2

In economics, the concept of aggregate demand was first emphasized by

A) rational expectation theorists.
B) supply-side economists.
C) monetarists.
D) John Maynard Keynes.

Answer 2

D

Question 3

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

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

Answer 3

D

Question 4

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

A) rational expectation theorists.
B) supply-side economists.
C) monetarists.
D) John Maynard Keynes.

Question 5

________ economics includes the idea that labor markets don't always clear due to wage rigidities.

A) Classical
B) New Classical
C) Monetarist
D) Keynesian

Question 6

Keynesians believe the economy can be managed using monetary and fiscal policy.

Question 7

Keynes believed which of the following?

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 8

Keynesian economics includes the idea that

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 9

Lowering taxes is a contractionary Keynesian policy.

Question 10

John Maynard Keynes emphasized the problem that sticky wages may have on the economy.

Question 11

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

A) inflation of the 1970s and early 1980s.
B) recession of 1974-1975.
C) recession of 1980-1982.
D) all of the above

Question 12

The state of the economy during the 1970s and 1980s reinforced the ideas of Keynesian economic policies and their ability to successfully manage the macroeconomy.

Question 13

Keynesians believe that government policies can improve economic performance.

Question 14

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

Question 15

In a sense, Keynesian economics is the foundation of all macroeconomics.

Question 16

Many economists challenged the idea of passive government involvement in the economy following the inflation of the 1970s and early 1980s, and the recessions of 1974-1975 and 1980-1982.

Question 17

Increasing government spending is a contractionary Keynesian economic policy.

Question 18

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

A) rational expectation theorists.
B) supply-side economists.
C) monetarists.
D) John Maynard Keynes.

Question 19

Among the propositions of the Keynesian school of thought is

A) economic policies are ineffective.
B) aggregate supply management is the key to a stable economy.
C) aggregate demand determines equilibrium output.
D) rational expectations.

Question 20

John Maynard Keynes was the author of

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 21

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

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 22

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

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

Question 23

According to the quantity theory of money, nominal GDP will double if the money supply is

A) reduced by one-half.
B) reduced threefold.
C) doubled.
D) tripled.

Question 24

If the stock of money is $100 billion, velocity is 4, and the price level is 5, what is income?

A) $5 billion
B) $80 billion
C) $125 billion
D) $2,000 billion

Question 25

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

A) the monetary schools
B) the classical school
C) the Keynesian school
D) the rational expectation school

Question 26

If the stock of money is $60 billion, velocity is 5, and real output is $100 billion, what is the price level?

A) 0.12
B) 1.4
C) 3
D) 6

Question 27

If income is $30 billion, the price level is 3, and the stock of money is $18 billion, what is the velocity of money?

A) 1.4
B) 1.8
C) 5
D) 180

Question 28

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

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

Question 29

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

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

Question 30

The velocity of money is

A) the number of times a dollar bill exchanges hands in a year.
B) the ratio of deposits to money supply.
C) the number of times the Fed increases money supply in a year.
D) the relationship between money supply and money demand.

Question 31

If the stock of money is $250 billion, velocity is 5, and the price level is 10, what is real output?

A) $5 billion
B) $125 billion
C) $500 billion
D) $12,500 billion

Question 32

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

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

Question 33

If income is $20 billion, the price level is 5, and the stock of money is $10 billion, what is the income velocity of money?

A) 0.4
B) 2.5
C) 4
D) 10

Question 34

Suppose that the stock of money is $150 billion and nominal GDP is $750 billion. The velocity of money is

A) 4.
B) 5.
C) 16.7.
D) 600.

Question 35

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

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

Question 36

A velocity of 6 means money changes hands, on average, every

A) 6 years.
B) 6 months.
C) 2 months.
D) 1/6 of a month.

Question 37

The velocity of money is the ratio of

A) real GDP to the stock of money.
B) the overall price level to the stock of money.
C) nominal GDP to the stock of money.
D) nominal GDP to the overall price level.

Question 38

The ratio of nominal GDP to the stock of money is the

A) money multiplier.
B) velocity of money.
C) real GDP.
D) GDP deflator.

Question 39

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

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

Question 40

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

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

Question 41

Which of the following is true?

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.

Question 42

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

A) increase the velocity of money in the short run.
B) increase real GDP in the short run.
C) decrease the velocity of money in the short run.
D) none of the above

Question 43

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

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

Question 44

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

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 45

The leading spokesman for monetarism over the last few decades was

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

Question 46

Empirical evidence suggests that from 1960 until 2007, the velocity of money had, on average, been

A) constant.
B) decreasing.
C) rising.
D) fluctuating around zero.

Question 47

If the demand for money depends on the interest rate, then a 15% increase in the money supply will increase

A) nominal GDP by 15%.
B) nominal GDP by less than 15%.
C) nominal GDP by more than 30%.
D) real GDP by 30%.

Question 48

Monetarists argue that the money supply should

A) grow at a rate equal to the average growth of real output.
B) grow at a rate slower than the average growth of real output.
C) grow at a rate greater than the average growth of real output.
D) be held constant over the business cycle.

Question 49

Velocity is not constant if

A) the money supply does not depend on the interest rate.
B) the supply of money depends on the interest rate.
C) the price level increases as aggregate output increases.
D) the demand for money depends on the interest rate.

Question 50

Which of the following statements is not consistent with the quantity theory of money?

A) The velocity of money can be affected by how frequently workers are paid.
B) The velocity of money can be affected by the development of new financial instruments, such as interest-bearing checking accounts.
C) The velocity of money can be affected by the manner in which the banking system clears transactions between banks.
D) Velocity can change with changes in the interest rate.

Question 51

Monetarists and Keynesians

A) disagree on the speed at which wages change.
B) agree on the impact of fiscal policy on the economy.
C) disagree on how the Fed changes money supply.
D) agree on the usefulness of discretionary policy.

Question 52

Monetarists believe that real output is determined by

A) government spending.
B) the rate of growth of the money supply.
C) government planning.
D) aggregate supply.

Question 53

It is difficult to test whether the velocity of money is constant over time because

A) there has been very little variation in the money supply over time.
B) there may be a time lag between a change in the money supply and its effects on nominal GDP.
C) there is only one definition of the money supply.
D) it is difficult to measure the value of nominal GDP over time.

Question 54

The quantity theory of money can be written as

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

Question 55

Which of the following schools of economic thought is decidedly opposed to government intervention in the macroeconomy?

A) new classical
B) monetarism
C) Keynesian
D) both A and B

Question 56

If the equation for the quantity theory of money is looked on as a demand-for-money equation, then the demand for money depends on

A) nominal income but not on the interest rate.
B) nominal income and the interest rate.
C) real income but not on the interest rate.
D) real income and the interest rate.

Question 57

Monetarists believe

A) the economy is stable.
B) the economy is rigid.
C) the economy does not equilibrate quickly.
D) the economy is unstable.

Question 58

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause

A) the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to decrease.
B) the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase.
C) the interest rate to decrease, the quantity demanded of money to decrease, and the velocity of money to increase.
D) the interest rate to decrease, the quantity demanded of money to increase, and the velocity of money to decrease.

Question 59

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

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 60

Velocity will be constant if the demand for money with respect to the interest rate is

A) unitary elastic.
B) perfectly inelastic.
C) perfectly elastic.
D) elastic, but not perfectly elastic.

Question 61

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

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

Question 62

Suppose that the stock of money is $250 billion and nominal GDP is $2,000 billion. The velocity of money is

A) 0.125.
B) 6.
C) 8.
D) 2,250.

Question 63

If income is $60 billion, the price level is 6, and the stock of money is $36 billion, what is the velocity of money?

A) 2.4
B) 3.6
C) 10
D) 36

Question 64

If income is $40 billion, the price level is 10, and the stock of money is $20 billion, what is the velocity of money?

A) 0.8
B) 5
C) 8
D) 20

Question 65

If the stock of money is $150 billion, velocity is 4, and the price level is 3, what is real output?

A) $37.5 billion
B) $112.5 billion
C) $200 billion
D) $1,800 billion

Question 66

In the quantity theory of money, velocity is assumed

A) to equal 1.4.
B) constant.
C) to increase with increases in the money supply.
D) to be a declining number.

Question 67

If real output is $50 billion, the price level is 10, and velocity is 5, what is the stock of money?

A) $1 billion
B) $25 billion
C) $100 billion
D) $2,500 billion

Question 68

If nominal GDP is $600 billion and the money supply is $200 billion, the velocity of money is

A) 0.33.
B) 1.2.
C) 3.
D) 12.

Question 69

Velocity is ________ if the demand for money depends on the interest rate.

A) constant
B) zero
C) infinite
D) not constant

Question 70

According to the quantity theory of money, nominal GDP will ________ if the money supply ________.

A) fall by 50%; rises by 50%
B) rise by 50%; falls by 50%
C) double; doubles
D) rise by 100%; falls by 50%

Question 71

MV = PY represents the

A) quantity theory of money.
B) Keynesian equation of equality.
C) banking equilibrium.
D) federal funds equation.

Question 72

If the stock of money is $20 billion, velocity is 4, and real output is $40 billion, what is the price level?

A) 0.5
B) 2
C) 8
D) 320

Question 73

A velocity of ________ means money changes hands, on average, every 2 months.

A) 6
B) 2
C) 1.5
D) 0.5

Question 74

A velocity of 3 means money changes hands, on average, every

A) 3 years.
B) 4 months.
C) 3 months.
D) 1/3 of a month.

Question 75

The velocity of money is equal to

A) P × M / Y.
B) Y × P × M.
C) P × Y / M.
D) P / M × Y.

Question 76

The ________ is the number of times a dollar bill exchanges hands in a year.

A) velocity of money
B) exchange rate
C) money supply ratio
D) government spending multiplier

Question 77

If the stock of money is $50 billion, velocity is 4, and real output is $25 billion, what is the price level?

A) 0.5
B) 2
C) 4
D) 8

Question 78

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

A) money demand; inflation rate
B) money demand; money supply
C) money supply; price level
D) money supply; money demand

Question 79

If the stock of money is $200 billion, velocity is 5, and the price level is 5, what is income?

A) $8 billion
B) $40 billion
C) $200 billion
D) $5,000 billion

Question 80

The velocity of money is 3. If nominal GDP is $1,500 billion then the stock of money is

A) $300 billion.
B) $500 billion.
C) $4,500 billion.
D) $7,500 billion.