Question 1

In real-business-cycle theory, changes in the

Accepted Answer

A)   demand for money respond to changes in the supply of money.
B)   supply of money respond to changes in the demand for money.
C)   demand for money respond to changes in eﬃciency wages.
D)   supply of money respond to changes in coordination failures.E) All of the above
F) C) and D)

Question 2

Rational expectations theory suggests that people make consistent forecasting errors regarding the
effects of policy.

Accepted Answer

A) True 
 B)False

Question 3

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Accepted Answer

A)   circulation period of money must be one-fourth of a year.
B)   velocity of money is 4.
C)   average price per ﬁnal good sold is $3.
D)   velocity of money is 3.E) C) and D)
F) A) and D)

Question 4

The idea of coordination failures suggests the possibility of less than desirable price-level and real-
output equilibriums in the economy.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the graph. Assume that the economy is in initial equilibrium where AD  AD1A D _ { 1 }AD1​  intersects A
 AS1.A S _ { 1 }.AS1​.  . If
There is an anticipated decrease in aggregate demand to AD
 AD2A D _ { 2 }AD2​  , then, according to rational
Expectations theory, the path for adjustment runs from point

Accepted Answer

A)   A to B to C.
B)   A to D to C.
C)   A directly to C.
D)   A directly to D. E) A) and C)
F) None of the above

Question 6

Describe two basic differences between the mainstream and monetarist economic theories.

Accepted Answer

The mainstream view is that instability ...

Question 7

The equation of exchange is

Accepted Answer

A)   AS = AD.
B)   Saving = Income - Spending.
C)   MV = PQ.
D)    AD=C+Ig+G+XnA D = C + I _ { g } + G + X _ { n }AD=C+Ig​+G+Xn​E) None of the above
F) C) and D)

Question 8

According to mainstream macroeconomists, U.S. macro instability has resulted from

Accepted Answer

A)   investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks.
B)   adherence by the Fed to a monetary rule.
C)   government's attempts to balance its budget.
D)   wide ﬂuctuations in net exports.E) A) and D)
F) All of the above

Question 9

Adherents of the traditional monetary rule advocate that the

Accepted Answer

A)   functional ﬁnance approach to ﬁscal policy be adopted.
B)   money supply should be increased by a constant rate year after year.
C)   money supply should be reduced during inﬂation and increased during recession.
D)   money supply should be increased during inﬂation and reduced during recession.E) B) and C)
F) B) and D)

Question 10

Explain the new classical view of self-correction in the economy.

Accepted Answer

New classical economics contends that wh...

Question 11

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Accepted Answer

A)   is accompanied by an offsetting decline in fringe beneﬁts.
B)   increases supervision costs.
C)   reduces job turnover.
D)   increases worker absenteeism.E) C) and D)
F) All of the above

Question 12

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Accepted Answer

A)   mainstream economists
B)   supply-side economists
C)   rational expectations economists
D)   functional ﬁnance economistsE) A) and D)
F) A) and C)

Question 13

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

Accepted Answer

A) True 
 B)False

Question 14

According to monetarists, the Great Depression in the United States largely resulted from

Accepted Answer

A)   contractionary ﬁscal policy.
B)   excessive imports relative to exports.
C)   signiﬁcant changes in technology and resource availability.
D)   inappropriate monetary policy.E) B) and D)
F) B) and C)

Question 15

Accepted Answer

A)   E.
B)   B.
C)   C.
D)   D.E) A) and B)
F) All of the above

Question 16

Monetarists believe that

Accepted Answer

A)   prices and wages are inﬂexible or sticky.
B)   both product and resource markets are monopolistic.
C)   velocity is relatively stable.
D)   the economy is more stable when active ﬁscal and monetary policy are used.E) All of the above
F) B) and D)

Question 17

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level
results in no change in real output.

Accepted Answer

A) True 
 B)False

Question 18

How can paying workers an above-market wage result in greater eﬃciency? What are the
implications for the ﬂexibility of wages?

Accepted Answer

An above market wage can result in great...

Question 19

In comparing monetarism and rational expectations theory, we ﬁnd that

Accepted Answer

A)   both favor policy rules and for the same reasons.
B)   both favor policy rules, but for different reasons.
C)   both favor discretionary policies.
D)   the former favors discretionary policy, while the latter favors policy rules.E) A) and B)
F) B) and D)

Question 20

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _____________ and real output will ____________.

Accepted Answer

A)   fall; remain constant
B)   fall; fall
C)   remain constant; fall
D)   remain constant; riseE) A) and B)
F) All of the above

Exam 19: Current Issues in Macro Theory and Policy

Monetarists believe that

Correct Answer
verified

How can paying workers an above-market wage result in greater eﬃciency? What are the implications for the ﬂexibility of wages?

Correct Answer
verified
An above market wage can result in great...
View Answer

The equation of exchange is

Correct Answer
verified

Explain the new classical view of self-correction in the economy.

Correct Answer
verified
New classical economics contends that wh...
View Answer

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

Correct Answer
verified

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Correct Answer
verified

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

Correct Answer
verified

Describe two basic differences between the mainstream and monetarist economic theories.

Correct Answer
verified
The mainstream view is that instability ...
View Answer

According to mainstream macroeconomists, U.S. macro instability has resulted from

Correct Answer
verified

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Correct Answer
verified

In comparing monetarism and rational expectations theory, we ﬁnd that

Correct Answer
verified

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _ and real output will .

Correct Answer
verified

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Correct Answer
verified

According to monetarists, the Great Depression in the United States largely resulted from

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The idea of coordination failures suggests the possibility of less than desirable price-level and real- output equilibriums in the economy.

Correct Answer
verified

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Correct Answer
verified

In real-business-cycle theory, changes in the

Correct Answer
verified

Adherents of the traditional monetary rule advocate that the

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

Monetarists believe that

Correct AnswerverifiedShow Answer

How can paying workers an above-market wage result in greater eﬃciency? What are the implications for the ﬂexibility of wages?

Correct AnswerverifiedAn above market wage can result in great...View AnswerShow Answer

The equation of exchange is

Correct AnswerverifiedShow Answer

Explain the new classical view of self-correction in the economy.

Correct AnswerverifiedNew classical economics contends that wh...View AnswerShow Answer

Monetarists believe that a monetary policy rule will tend to lead to inﬂation.

Correct AnswerverifiedShow Answer

Which of the following groups of economists is most likely to favor annually balanced federal budgets?

Correct AnswerverifiedShow Answer

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

Correct AnswerverifiedShow Answer

Describe two basic differences between the mainstream and monetarist economic theories.

Correct AnswerverifiedThe mainstream view is that instability ...View AnswerShow Answer

According to mainstream macroeconomists, U.S. macro instability has resulted from

Correct AnswerverifiedShow Answer

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Correct AnswerverifiedShow Answer

In comparing monetarism and rational expectations theory, we ﬁnd that

Correct AnswerverifiedShow Answer

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _____________ and real output will ____________.

Correct AnswerverifiedShow Answer

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Correct AnswerverifiedShow Answer

According to monetarists, the Great Depression in the United States largely resulted from

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The idea of coordination failures suggests the possibility of less than desirable price-level and real- output equilibriums in the economy.

Correct AnswerverifiedShow Answer

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage

Correct AnswerverifiedShow Answer

In real-business-cycle theory, changes in the

Correct AnswerverifiedShow Answer

Adherents of the traditional monetary rule advocate that the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
An above market wage can result in great...
View Answer

Correct Answer
verified

Correct Answer
verified
New classical economics contends that wh...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The mainstream view is that instability ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose that, as expected, aggregate demand in the economy sharply declines. New classical economists say that the price level will _ and real output will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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