Question 1

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 offsetE) C) and D)
F) B) and D)

Question 2

From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by:

Accepted Answer

A)   The buying of government securities by the Treasury
B)   The selling of government securities by the Treasury
C)   A cut in the Federal funds rate
D)   A cut in the discount rateE) A) and C)
F) B) and C) B

Question 3

1 intersects ASLR1. If the economy experiences a change in technology that increases productivity and resources, then real-business-cycle theory would suggest that this macroeconomic instability would eventually produce a new equilibrium at point: A)  B B)  C C)  D D)  E" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that the economy is in initial equilibrium where AD1 intersects ASLR1. If the economy experiences a change in technology that increases productivity and resources, then real-business-cycle theory would suggest that this macroeconomic instability would eventually produce a new equilibrium at point:

Accepted Answer

A)   B
B)   C
C)   D
D)   EE) C) and D)
F) B) and C)

Question 4

The view that changes in the money supply is 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)   MonetarismE) A) and B)
F) None of the above

Question 5

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 relationshipsE) B) and D)
F) A) and D)

Question 6

The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of:

Accepted Answer

A)   Monetarism
B)   Real business cycle theory
C)   Mainstream economics
D)   Supply-side economicsE) A) and B)
F) All of the above

Question 7

Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible.

Accepted Answer

A) True 
 B)False

Question 8

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by:

Accepted Answer

A)   $13 billion
B)   $24 billion
C)   $72 billion
D)   $80 billionE) A) and C)
F) None of the above C

Question 9

Monetarists argue that the relationship between:

Accepted Answer

A)   The quantity of money the public wants to hold and the level of GDP is not stable
B)   The quantity of money the public wants to hold and the level of GDP is stable
C)   The quantity of money the public wants to hold and the level of saving is stable
D)   Velocity and the interest rate varies directlyE) A) and B)
F) A) and C)

Question 10

In the rational expectations view:

Accepted Answer

A)   Wages are flexible downward but prices are inflexible downward
B)   Prices are flexible downward but wages are inflexible downward
C)   Discretionary policy tends to be countercyclical
D)   Discretionary policy tends to be ineffectiveE) A) and C)
F) None of the above

Question 11

The rational expectations view that expectations regarding policy and its effects are important to consider:

Accepted Answer

A)   Serves as the primary rationale for the Laffer Curve
B)   Is now accepted by most mainstream economists
C)   Is consistent with the monetary rule calling for a constant rate of growth in the money supply
D)   Is challenged by research indicating that expectations have little economic effectE) B) and D)
F) A) and B)

Question 12

The "efficiency wage" is one possible explanation for rigidities in the economy that leads to economic instability.

Accepted Answer

A) True 
 B)False

Question 13

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate:

Accepted Answer

A)   Demand will have a large effect on the price level, but a small effect on output
B)   Demand will have a small effect on the price level, but a large effect on output
C)   Demand will have a large effect on the price level, but no effect on output
D)   Supply will have a large effect on the price level, but no effect on outputE) A) and D)
F) All of the above

Question 14

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n) :

Accepted Answer

A)   Unanticipated price level change
B)   Fully-anticipated price level change
C)   Mutually beneficial equilibrium
D)   Insider-outsider relationshipE) None of the above
F) C) and D)

Question 15

1 intersects AS1. If there is an anticipated increase in aggregate demand to AD2, then according to the rational expectations economists, the path for adjustment runs from point: A)  A to B to C B)  A to D to C C)  A directly to C D)  A directly to B" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an anticipated increase in aggregate demand to AD2, then according to the rational expectations economists, 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 BE) B) and C)
F) None of the above C

Question 16

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

Question 17

The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around.

Accepted Answer

A) True 
 B)False

Question 18

Real-business-cycle theory suggests that changes in:

Accepted Answer

A)   Monetary policy is the single most important cause of macroeconomic instability
B)   Investment spending will have a direct and significant effect on aggregate demand
C)   Technology and resources affect productivity, and thus the long-run growth of aggregate supply
D)   The velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDPE) A) and C)
F) B) and D)

Question 19

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n) :

Accepted Answer

A)   Increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged
B)   Increase in aggregate demand by an equal amount, so real output and the price level would increase
C)   Decrease in aggregate demand, so real output would increase and the price level would decrease
D)   Decrease in aggregate demand, so real output and the price level would increaseE) A) and B)
F) B) and C)

Question 20

1 and AS1. Suppose that there is economic growth which shifts AS1 to AS2. Because of the shift from AS1 to AS2, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be: A)  P4 and Q2 B)  P3 and Q2 C)  P2 and Q2 D)  P1 and Q2" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Suppose that there is economic growth which shifts AS1 to AS2. Because of the shift from AS1 to AS2, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be:

Accepted Answer

A)   P4 and Q2
B)   P3 and Q2
C)   P2 and Q2
D)   P1 and Q2E) A) and C)
F) B) and C)

Exam 19: Current Issues in Macro Theory and Policy

Mainstream macroeconomics would suggest that fiscal policy:

Correct Answer
verified

From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by:

Correct Answer
verified
B

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

Correct Answer
verified

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

Correct Answer
verified

The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of:

Correct Answer
verified

Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible.

Correct Answer
verified

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by:

Correct Answer
verified
C

Monetarists argue that the relationship between:

Correct Answer
verified

In the rational expectations view:

Correct Answer
verified

The rational expectations view that expectations regarding policy and its effects are important to consider:

Correct Answer
verified

The "efficiency wage" is one possible explanation for rigidities in the economy that leads to economic instability.

Correct Answer
verified

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate:

Correct Answer
verified

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n) :

Correct Answer
verified

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an anticipated increase in aggregate demand to AD₂, then according to the rational expectations economists, the path for adjustment runs from point:

Correct Answer
verified
C

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 Answer
verified

The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around.

Correct Answer
verified

Real-business-cycle theory suggests that changes in:

Correct Answer
verified

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n) :

Correct Answer
verified

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

Mainstream macroeconomics would suggest that fiscal policy:

Correct AnswerverifiedShow Answer

From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by:

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of:

Correct AnswerverifiedShow Answer

Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible.

Correct AnswerverifiedShow Answer

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by:

Correct AnswerverifiedC

Monetarists argue that the relationship between:

Correct AnswerverifiedShow Answer

In the rational expectations view:

Correct AnswerverifiedShow Answer

The rational expectations view that expectations regarding policy and its effects are important to consider:

Correct AnswerverifiedShow Answer

The "efficiency wage" is one possible explanation for rigidities in the economy that leads to economic instability.

Correct AnswerverifiedShow Answer

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate:

Correct AnswerverifiedShow Answer

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n) :

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an anticipated increase in aggregate demand to AD2, then according to the rational expectations economists, the path for adjustment runs from point:

Correct AnswerverifiedC

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

The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around.

Correct AnswerverifiedShow Answer

Real-business-cycle theory suggests that changes in:

Correct AnswerverifiedShow Answer

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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B

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C

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Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an anticipated increase in aggregate demand to AD₂, then according to the rational expectations economists, the path for adjustment runs from point:

Correct Answer
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C

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