Question 1

Monetarists argue that government policy interference in the economy is the primary cause of
macroeconomic instability.

Accepted Answer

A) True 
 B)False

Question 2

New classical economists say that an unanticipated decrease in aggregate demand ﬁrst

Accepted Answer

A)  decreases the price level and real output, and then decreases long-run aggregate supply. 
B)  decreases long-run aggregate supply, and then decreases the price level and real output. 
C)  reduces short-run aggregate supply, and then reduces long-run aggregate supply. 
D)  decreases the price level and real output, and then increases short-run aggregate supply such that the economy returns to the full-employment level of output. 
A)  decreases the price level and real output, and then decreases long-run aggregate supply. 
B)  decreases long-run aggregate supply, and then decreases the price level and real output. 
C)  reduces short-run aggregate supply, and then reduces long-run aggregate supply. 
D)  decreases the price level and real output, and then increases short-run aggregate supply such that the economy returns to the full-employment level of output.

Question 3

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. 
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.

Question 4

The average number of times per year that a dollar bill is used to pay for ﬁnal goods and services is the

Accepted Answer

A)  monetary rule. 
B)  velocity of money. 
C)  asset demand for money. 
D)  transactions demand for money. 
A)  monetary rule. 
B)  velocity of money. 
C)  asset demand for money. 
D)  transactions demand for money.

Question 5

In real-business-cycle theory, real output can change without a change in the price level.

Accepted Answer

A) True 
 B)False

Question 6

Accepted Answer

A)  direct relationship between aggregate supply and aggregate demand. 
B)  real-business-cycle view of recession. 
C)  monetarist view of recession. 
D)  mainstream, Keynesian-based view of recession. 
A)  direct relationship between aggregate supply and aggregate demand. 
B)  real-business-cycle view of recession. 
C)  monetarist view of recession. 
D)  mainstream, Keynesian-based view of recession.

Question 7

An idea from monetarism that has been absorbed into mainstream macroeconomics would be the

Accepted Answer

A)  effects of aggregate supply shocks on the level of real output and the price level. 
B)  importance of the effects of changes in the money supply on the economy. 
C)  use of discretion rather than rules for guiding economic policy in the economy. 
D)  inﬂuence of real changes, such as in technology and resource availability, on the level of output. 
A)  effects of aggregate supply shocks on the level of real output and the price level. 
B)  importance of the effects of changes in the money supply on the economy. 
C)  use of discretion rather than rules for guiding economic policy in the economy. 
D)  inﬂuence of real changes, such as in technology and resource availability, on the level of output.

Question 8

(Consider This) In the mainstream view, the severe recession of 2007-2009 was caused by

Accepted Answer

A)  an aggregate-supply shock, which caused the AS curve to shift left. 
B)  a ﬁnancial crisis that caused a shrinkage in investment and consumption spending, thereby reducing aggregate demand. 
C)  monetary factors, speciﬁcally the excessive expansion of money supply brought about by the Federal Reserve, starting in the recession of 2001. 
D)  a huge and sudden drop in the velocity of money, causing a signiﬁcant reduction in both nominal and real GDP. 
A)  an aggregate-supply shock, which caused the AS curve to shift left. 
B)  a ﬁnancial crisis that caused a shrinkage in investment and consumption spending, thereby reducing aggregate demand. 
C)  monetary factors, speciﬁcally the excessive expansion of money supply brought about by the Federal Reserve, starting in the recession of 2001. 
D)  a huge and sudden drop in the velocity of money, causing a signiﬁcant reduction in both nominal and real GDP.

Question 9

Monetarists argue that when expansionary ﬁscal policy is ﬁnanced through borrowing,

Accepted Answer

A)  monetary policy becomes tight. 
B)  private investment spending will be crowded out. 
C)  the demand for money and interest rates both decrease. 
D)  the investment demand curve becomes relatively steep. 
A)  monetary policy becomes tight. 
B)  private investment spending will be crowded out. 
C)  the demand for money and interest rates both decrease. 
D)  the investment demand curve becomes relatively steep.

Question 10

Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A
$A S _ {1 }$ . If
There is an anticipated increase in aggregate demand to AD
$A D _ { 2 }$ , 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 B. 
A)  A to B to C. 
B)  A to D to C. 
C)  A directly to C. 
D)  A directly to B.

Question 11

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

Question 12

The mainstream view of macro instability is that

Accepted Answer

A)  changes in the money supply directly cause changes in aggregate demand and thus cause changes in real GDP. 
B)  changes in investment shift the aggregate demand curve and thus cause changes in real GDP. 
C)  bursts of innovation put the economy on an unsustainable growth path, eventually producing recession. 
D)  changes in technology and resource availability are the two main sources of ﬂuctuations of real GDP. 
A)  changes in the money supply directly cause changes in aggregate demand and thus cause changes in real GDP. 
B)  changes in investment shift the aggregate demand curve and thus cause changes in real GDP. 
C)  bursts of innovation put the economy on an unsustainable growth path, eventually producing recession. 
D)  changes in technology and resource availability are the two main sources of ﬂuctuations of real GDP.

Question 13

How do new classical economists view the importance of policy rules and discretion in
macroeconomic policy?

Accepted Answer

Monetarists and other new classical econ

Question 14

In the view of rational expectations theory,

Accepted Answer

A)  people make economic forecasts that are based on insider-outsider relationships and self- fulﬁlling prophecies. 
B)  people form beliefs about future economic outcomes that accurately reﬂect the likelihood that those outcomes will occur. 
C)  people form their expectations on present realities and only gradually change their expectations as experience unfolds. 
D)  the economy does not respond quickly to changes in prices, which causes a misallocation of economic resources. 
A)  people make economic forecasts that are based on insider-outsider relationships and self- fulﬁlling prophecies. 
B)  people form beliefs about future economic outcomes that accurately reﬂect the likelihood that those outcomes will occur. 
C)  people form their expectations on present realities and only gradually change their expectations as experience unfolds. 
D)  the economy does not respond quickly to changes in prices, which causes a misallocation of economic resources.

Question 15

In the theory of coordination failures, shifts of the nation's long-run aggregate supply curve are the
main cause of business cycles.

Accepted Answer

A) True 
 B)False

Question 16

What have been the changes or modiﬁcations in thinking about monetary rules in recent decades?

Accepted Answer

Milton Friedman, a prominent monetarist,

Question 17

The velocity of money is equal to

Accepted Answer

A)  $\text { 1/MPS. }$ 
B)  $\text { nominal GDP/M. }$ 
C)  $1 / \text { reserve ratio. }$ 
D)  $\text { nominal GDP/P. }$ 
A)  $\text { 1/MPS. }$ 
B)  $\text { nominal GDP/M. }$ 
C)  $1 / \text { reserve ratio. }$ 
D)  $\text { nominal GDP/P. }$

Question 18

The real-business-cycle theorists say that business cycles are caused by real factors affecting
aggregate supply.

Accepted Answer

A) True 
 B)False

Question 19

In the new classical theory, a fully anticipated change in aggregate demand and the price level will
temporarily change real output, but an unanticipated change will not.

Accepted Answer

A) True 
 B)False

Question 20

In the strict monetarist view, a large increase in the money supply will have

Accepted Answer

A)  a large impact on the velocity of money and a large impact on nominal output. 
B)  a large impact on the velocity of money and a small impact on nominal output. 
C)  no effect on the velocity of money and a large impact on nominal output. 
D)  no effect on the velocity of money and a small impact on the nominal output. 
A)  a large impact on the velocity of money and a large impact on nominal output. 
B)  a large impact on the velocity of money and a small impact on nominal output. 
C)  no effect on the velocity of money and a large impact on nominal output. 
D)  no effect on the velocity of money and a small impact on the nominal output.

Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability.

New classical economists say that an unanticipated decrease in aggregate demand ﬁrst

To stabilize the economy, monetarists and rational expectations economists

The average number of times per year that a dollar bill is used to pay for ﬁnal goods and services is the

In real-business-cycle theory, real output can change without a change in the price level.

An idea from monetarism that has been absorbed into mainstream macroeconomics would be the

(Consider This) In the mainstream view, the severe recession of 2007-2009 was caused by

Monetarists argue that when expansionary ﬁscal policy is ﬁnanced through borrowing,

The most likely advocates for a monetary rule would be

The mainstream view of macro instability is that

How do new classical economists view the importance of policy rules and discretion in macroeconomic policy?

In the view of rational expectations theory,

In the theory of coordination failures, shifts of the nation's long-run aggregate supply curve are the main cause of business cycles.

What have been the changes or modiﬁcations in thinking about monetary rules in recent decades?

The velocity of money is equal to

The real-business-cycle theorists say that business cycles are caused by real factors affecting aggregate supply.

In the new classical theory, a fully anticipated change in aggregate demand and the price level will temporarily change real output, but an unanticipated change will not.

In the strict monetarist view, a large increase in the money supply will have

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 19: Current Issues in Macro Theory and Policy

Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability.

New classical economists say that an unanticipated decrease in aggregate demand ﬁrst

To stabilize the economy, monetarists and rational expectations economists

The average number of times per year that a dollar bill is used to pay for ﬁnal goods and services is the

In real-business-cycle theory, real output can change without a change in the price level.

An idea from monetarism that has been absorbed into mainstream macroeconomics would be the

(Consider This) In the mainstream view, the severe recession of 2007-2009 was caused by

Monetarists argue that when expansionary ﬁscal policy is ﬁnanced through borrowing,

The most likely advocates for a monetary rule would be

The mainstream view of macro instability is that

How do new classical economists view the importance of policy rules and discretion in macroeconomic policy?

In the view of rational expectations theory,

In the theory of coordination failures, shifts of the nation's long-run aggregate supply curve are the main cause of business cycles.

What have been the changes or modiﬁcations in thinking about monetary rules in recent decades?

The velocity of money is equal to

The real-business-cycle theorists say that business cycles are caused by real factors affecting aggregate supply.

In the new classical theory, a fully anticipated change in aggregate demand and the price level will temporarily change real output, but an unanticipated change will not.

In the strict monetarist view, a large increase in the money supply will have

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters