Question 1

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

Accepted Answer

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 aboveE) A) and D)
F) C) and D)

Question 2

If all firms have rational expectations and wages and prices are flexible, there will be

Accepted Answer

A)   high unemployment because firms set their wages above the equilibrium wage rate.
B)   a shortage of labor because firms set their wage below the equilibrium wage rate.
C)   no unemployment.
D)   high unemployment because firms know the "true model."E) All of the above
F) None of the above

Question 3

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow. 1. A)  Keynes; contractionary B)  Keynes; expansionary C)  the new classicals; contractionary D)  the new classicals; expansionary" class="answers-bank-image d-inline" rel="preload" > Figure 32.2
-Refer to Figure 32.2. 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; expansionaryE) C) and D)
F) B) and D)

Question 4

Refer to the information provided in Figure 32.3 below to answer the question(s)  that follow.  Figure 32.3
-Refer to Figure 32.3. 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.E) None of the above
F) A) and C)

Question 5

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

Accepted Answer

A)   0.5
B)   2
C)   8
D)   320E) B) and C)
F) None of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

According to the Lucas supply function, workers who experience a positive price surprise will work more hours when

Accepted Answer

A)   there is no substitution effect from a positive price surprise.
B)   there is no income effect from a positive price surprise.
C)   the substitution effect dominates the income effect.
D)   the income effect dominates the substitution effect.E) All of the above
F) A) and B)

Question 8

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow. 1 to the right. B)  shift AD1 to the right. C)  shift AD1 to the left. D)  none of the above." class="answers-bank-image d-inline" rel="preload" > Figure 32.2
-Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected increase in government spending would

Accepted Answer

A)   shift AS1 to the right.
B)   shift AD1 to the right.
C)   shift AD1 to the left.
D)   none of the above.E) None of the above
F) A) and B)

Question 9

If nominal GDP is $500 billion, velocity is $500 billion divided by the stock of money.

Accepted Answer

A) True 
 B)False

Question 10

A velocity of 1 means that money will not change hands during a particular year.

Accepted Answer

A) True 
 B)False

Question 11

A problem with comparing macroeconomic models is that

Accepted Answer

A)   people may change how they react when economic policies are changed.
B)   macroeconomic models do not predict the same outcomes from policies.
C)   macroeconomic models cannot be expressed in mathematical terms.
D)   macroeconomic models must meet government standards for uniformity.E) A) and D)
F) B) and C)

Question 12

If firms have ________ and if they set prices and wages on this basis, then prices and wages will, on average, be set at market-clearing levels.

Accepted Answer

A)   negative inventories
B)   rational expectations
C)   excess capacity
D)   no competitionE) B) and C)
F) A) and C)

Question 13

The new classical theoretical critique of the existing macroeconomic models is based on

Accepted Answer

A)   the way people form their expectations.
B)   the nature of the tradeoff between inflation and growth.
C)   wages and labor market equilibrium.
D)   the link between the money market and the goods market.E) All of the above
F) B) and C)

Question 14

The rational expectations hypothesis assumes that people know the "true model" of the economy and form their expectations of the future based on this model.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow. 1 to the right. B)  shift LRAS to the right. C)  shift AD1 to the right. D)  shift AD1 to the left." class="answers-bank-image d-inline" rel="preload" > Figure 32.2
-Refer to Figure 32.2. According to Keynes, an increase in government spending or an increase in money supply will

Accepted Answer

A)   shift AS1 to the right.
B)   shift LRAS to the right.
C)   shift AD1 to the right.
D)   shift AD1 to the left.E) A) and B)
F) A) and C)

Question 16

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

Question 17

According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market

Accepted Answer

A)   will never exist.
B)   will only exist in times of high inflation.
C)   will only be temporary.
D)   will be a common occurrence.E) A) and B)
F) B) and D)

Question 18

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

Accepted Answer

A)   aggregate supply curve.
B)   Lucas supply curve.
C)   aggregate production function.
D)   Laffer curve.E) A) and D)
F) A) and C)

Question 19

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.E) None of the above
F) B) and D)

Question 20

Monetarists and Keynesians

Accepted Answer

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.E) B) and D)
F) B) and C)

Exam 32: Alternative Views in Macroeconomics

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected increase in government spending would

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

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A velocity of 1 means that money will not change hands during a particular year.

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The new classical theoretical critique of the existing macroeconomic models is based on

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Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to ________, a(n) ________ monetary policy in the short run and after all the adjustments have been made increases equilibrium output above Y1.

Correct AnswerverifiedShow Answer

According to the Lucas supply function, workers who experience a positive price surprise will work more hours when

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The rational expectations hypothesis assumes that people know the "true model" of the economy and form their expectations of the future based on this model.

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

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

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Monetarists and Keynesians

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Refer to the information provided in Figure 32.3 below to answer the question(s) that follow. Figure 32.3 -Refer to Figure 32.3. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated decrease in money supply

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If firms have ________ and if they set prices and wages on this basis, then prices and wages will, on average, be set at market-clearing levels.

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

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to Keynes, an increase in government spending or an increase in money supply will

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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

Correct AnswerverifiedShow Answer

If nominal GDP is $500 billion, velocity is $500 billion divided by the stock of money.

Correct AnswerverifiedShow Answer

If all firms have rational expectations and wages and prices are flexible, there will be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A problem with comparing macroeconomic models is that

Correct AnswerverifiedShow Answer

According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market

Correct AnswerverifiedShow Answer

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Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to , a(n) monetary policy in the short run and after all the adjustments have been made increases equilibrium output above Y₁.

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