Question 1

The crowding-out effect refers to the possibility that

Accepted Answer

A)  when used simultaneously, expansionary fiscal and monetary policies are counterproductive.
B)  the asset demand for money varies inversely with the interest rate.
C)  deficit financing will increase the interest rate and reduce investment.
D)  an increase in the supply of money will result in a decline in velocity.E) B) and D)
F) A) and D)

Question 2

To stabilize the economy, monetarists and rational expectations economists

Accepted Answer

A)  would like a monetary rule to be adopted.
B)  would like to see coordination failures eliminated.
C)  recommend the use of discretionary fiscal policy.
D)  recommend the use of discretionary monetary policy.E) None of the above
F) All of the above

Question 3

The idea that the economy will self-correct when confronted with changes in aggregate demand is associated with new classical economics.

Accepted Answer

A) True 
 B)False

Question 4

An efficiency wage is one that

Accepted Answer

A)  increases the velocity of money.
B)  minimizes the firm's labor cost per unit of output.
C)  results from significant changes in technology and labor.
D)  is imposed by government to guarantee workers a living wage.E) None of the above
F) A) and B)

Question 5

According to the equation of exchange, changes in the money supply can affect

Accepted Answer

A)  only the velocity of money.
B)  both the price level and real output.
C)  only real output and employment.
D)  only the price level.E) B) and C)
F) C) and D)

Question 6

In the insider-outsider theory, insiders are agents and outsiders are principals.

Accepted Answer

A) True 
 B)False

Question 7

In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

Accepted Answer

A) True 
 B)False

Question 8

According to economist Milton Friedman, a major reason for macroeconomic instability is

Accepted Answer

A)  tax changes by the Federal government.
B)  spending reductions by the Federal government.
C)  the discretionary monetary policy of the Federal Reserve.
D)  the issuance of bonds by the U.S.Treasury.E) None of the above
F) All of the above

Question 9

(Consider This)  Monetarists claim that the financial crisis and resulting 2007-2009 recession were caused largely by

Accepted Answer

A)  monetary policy that was too loose for too long.
B)  monetary policy that was too tight for too long.
C)  unexpected changes in the velocity of money.
D)  declines in business and consumer confidence.E) B) and D)
F) A) and C)

Question 10

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Accepted Answer

A)  mainstream macroeconomics.
B)  rational expectations theory.
C)  real-business-cycle theory.
D)  monetarism.E) B) and C)
F) A) and B)

Question 11

Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

Accepted Answer

A)  monetarism
B)  mainstream economics
C)  rational expectations
D)  new classical economicsE) None of the above
F) A) and B)

Question 12

In the rational expectations theory, a temporary change in real output could result from

Accepted Answer

A)  anticipated price-level changes.
B)  a price-level surprise.
C)  a coordination failure.
D)  insider-outsider relationships.E) A) and C)
F) None of the above

Question 13

In the mainstream view, the economic instability brought about by "oil shocks" works through changes in

Accepted Answer

A)  aggregate demand.
B)  wage and price inflexibility.
C)  money supply.
D)  aggregate supply.E) A) and B)
F) A) and C)

Question 14

The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

Accepted Answer

A)  rational expectations theory.
B)  real-business-cycle theory.
C)  mainstream economics.
D)  monetarism.E) B) and D)
F) A) and C)

Question 15

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) B) and C)
F) None of the above

Question 16

A mainstream criticism of rational expectations theory is that

Accepted Answer

A)  the theorists confuse correlation with causation in interpreting the empirical evidence.
B)  people do not make consistent forecasting errors that can be exploited by policymakers.
C)  many markets are not purely competitive and do not adjust rapidly to changing market conditions.
D)  the data indicate that economic policy does not affect real GDP and employment.E) A) and D)
F) All of the above

Question 17

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

Accepted Answer

A)  monetarism
B)  mainstream economics
C)  supply-side economics
D)  rational expectations theoryE) A) and B)
F) A) and C)

Question 18

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Accepted Answer

A)  has decreased historically because of increased accessibility to credit.
B)  rises during recession and falls during periods of full employment.
C)  falls during recession and rises during periods of full employment.
D)  is relatively stable.E) A) and B)
F) C) and D)

Question 19

Mainstream economists think that

Accepted Answer

A)  market participants change their actions in response to anticipated price-level changes such that no change in real output occurs.
B)  the economy self-corrects when unanticipated events divert it from its full-employment level of real output.
C)  the downward inflexibility of wages and prices may leave the economy stuck in a costly recession for long periods.
D)  significant changes in technology and resource availability cause macroeconomic instability.E) B) and C)
F) All of the above

Question 20

If nominal GDP is $848 billion and the velocity of money is 4, then the

Accepted Answer

A)  money supply is $170 billion.
B)  money supply is $212 billion.
C)  consumer price index is 340.
D)  average level of prices is $170 billion.E) All of the above
F) C) and D)

Exam 39: Current Issues in Macro Theory and Policy

In the mainstream view, the economic instability brought about by "oil shocks" works through changes in

Correct AnswerverifiedShow Answer

To stabilize the economy, monetarists and rational expectations economists

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Mainstream economists think that

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An efficiency wage is one that

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In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.

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In the insider-outsider theory, insiders are agents and outsiders are principals.

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The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of

Correct AnswerverifiedShow Answer

If nominal GDP is $848 billion and the velocity of money is 4, then the

Correct AnswerverifiedShow Answer

The idea that the economy will self-correct when confronted with changes in aggregate demand is associated with new classical economics.

Correct AnswerverifiedShow Answer

In the rational expectations theory, a temporary change in real output could result from

Correct AnswerverifiedShow Answer

According to the equation of exchange, changes in the money supply can affect

Correct AnswerverifiedShow Answer

Which view of the macroeconomy suggests that the speed of adjustment for self-correction would be very quick?

Correct AnswerverifiedShow Answer

The crowding-out effect refers to the possibility that

Correct AnswerverifiedShow Answer

A mainstream criticism of rational expectations theory is that

Correct AnswerverifiedShow Answer

Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

Correct AnswerverifiedShow Answer

(Consider This) Monetarists claim that the financial crisis and resulting 2007-2009 recession were caused largely by

Correct AnswerverifiedShow Answer

Monetarists believe that

Correct AnswerverifiedShow Answer

Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income

Correct AnswerverifiedShow Answer

The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with

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According to economist Milton Friedman, a major reason for macroeconomic instability is

Correct AnswerverifiedShow Answer

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