Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

If the money supply is constant when both nominal and real GDP are rising, we can conclude that

Accepted Answer

A)  tax rates have been increased.
B)  the velocity of money must be increasing.
C)  interest rates are falling.
D)  the unemployment rate is rising.E) C) and D)
F) A) and D)

Question 4

The velocity of money measures the

Accepted Answer

A)  proportion of the money supply held as an asset.
B)  ratio of the transactions demand to the asset demand for money.
C)  average annual rate of increase in the money supply.
D)  number of times per year the average dollar is spent on final goods and services.E) None of the above
F) C) and D)

Question 5

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

Question 6

(Consider This)  According to economist Abba Lerner (1903-1982) , fiscal and monetary policy is analogous to

Accepted Answer

A)  automobile brakes.
B)  a steering wheel in an automobile.
C)  a string that can be pushed or pulled.
D)  highway guard rails.E) A) and B)
F) A) and C)

Question 7

The mainstream view is that macro instability is caused by

Accepted Answer

A)  erratic growth of the nation's money supply.
B)  government interference in the economy.
C)  significant changes in investment spending.
D)  consumption "booms" and "busts."E) B) and D)
F) A) and B)

Question 8

According to monetarists, discretionary monetary policy has been a major source of economic instability.

Accepted Answer

A) True 
 B)False

Question 9

If M is $400, P is $4, and Q is 300, then V must be

Accepted Answer

A)  1.33.
B)  3.
C)  5.33.
D)  100.E) C) and D)
F) A) and B)

Question 10

The most likely advocates for a monetary rule would be

Accepted Answer

A)  monetarists.
B)  real-business-cycle theorists.
C)  mainstream economists.
D)  supply-side economists.E) B) and C)
F) C) and D)

Question 11

The real-business-cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor.

Accepted Answer

A) True 
 B)False

Question 12

If prices and wages are inflexible downward, a decrease in aggregate demand will

Accepted Answer

A)  reduce the price level but not real output.
B)  increase short-run aggregate supply.
C)  decrease short-run aggregate supply.
D)  reduce real output but not the price level.E) B) and D)
F) C) and D)

Question 13

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Accepted Answer

A)  decrease in short-run aggregate supply, so output returns to its initial level but the price level rises.
B)  decrease in short-run aggregate supply, so output increases and the price level rises.
C)  decrease in short-run aggregate supply, so output returns to its initial level and the price level falls.
D)  increase in short-run aggregate supply, so output increases and the price level rises.E) None of the above
F) B) and D)

Question 14

An efficiency wage is

Accepted Answer

A)  a below-market wage.
B)  an above-market wage.
C)  a "wage" that contains a profit-sharing component.
D)  a wage that is free to rise or fall from day to day, depending on labor supply and demand.E) All of the above
F) B) and C)

Question 15

Mainstream macroeconomics would suggest that fiscal policy

Accepted Answer

A)  affects GDP and the price level through changes in aggregate supply.
B)  changes aggregate demand and GDP through the multiplier process.
C)  has no effect unless the fiscal policy is accompanied by changes in the money supply.
D)  is relatively ineffective because the outcomes are anticipated and offset.E) A) and D)
F) B) and C)

Question 16

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 D)
F) A) and C)

Question 17

A coordination failure is said to occur when people do not reach a mutually beneficial equilibrium because they lack some way to jointly coordinate their actions to achieve it.

Accepted Answer

A) True 
 B)False

Question 18

Mainstream economics views monetary policy as a

Accepted Answer

A)  source of instability, similar to the view of monetarism.
B)  stabilizing factor, similar to the view of monetarism.
C)  source of instability, while monetarism views it as a stabilizing factor.
D)  stabilizing factor, while monetarism views it as a source of instability.E) All of the above
F) A) and C)

Question 19

From the mainstream perspective, instability in the economy is due to

Accepted Answer

A)  price flexibility and shocks to either aggregate demand or aggregate supply.
B)  price stickiness and shocks to either aggregate demand or aggregate supply.
C)  price flexibility and government policies and regulation.
D)  price stickiness and government policies and regulation.E) A) and C)
F) C) and D)

Question 20

If the money supply growth is set at a slower pace than the growth of real GDP, then inflation will occur.

Accepted Answer

A) True 
 B)False

Exam 39: Current Issues in Macro Theory and Policy

The real-business-cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor.

Correct AnswerverifiedShow Answer

If the money supply growth is set at a slower pace than the growth of real GDP, then inflation will occur.

Correct AnswerverifiedShow Answer

The most likely advocates for a monetary rule would be

Correct AnswerverifiedShow Answer

Mainstream macroeconomics would suggest that fiscal policy

Correct AnswerverifiedShow Answer

In real-business-cycle theory, changes in the

Correct AnswerverifiedShow Answer

According to monetarists, discretionary monetary policy has been a major source of economic instability.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(Consider This) According to economist Abba Lerner (1903-1982) , fiscal and monetary policy is analogous to

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 comparing monetarism and rational expectations theory, we find that

Correct AnswerverifiedShow Answer

The velocity of money measures the

Correct AnswerverifiedShow Answer

The mainstream view is that macro instability is caused by

Correct AnswerverifiedShow Answer

If M is $400, P is $4, and Q is 300, then V must be

Correct AnswerverifiedShow Answer

From the mainstream perspective, instability in the economy is due to

Correct AnswerverifiedShow Answer

Mainstream economics views monetary policy as a

Correct AnswerverifiedShow Answer

If prices and wages are inflexible downward, a decrease in aggregate demand will

Correct AnswerverifiedShow Answer

An efficiency wage is

Correct AnswerverifiedShow Answer

A coordination failure is said to occur when people do not reach a mutually beneficial equilibrium because they lack some way to jointly coordinate their actions to achieve it.

Correct AnswerverifiedShow Answer

If the money supply is constant when both nominal and real GDP are rising, we can conclude that

Correct AnswerverifiedShow Answer

If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n)

Correct AnswerverifiedShow Answer

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