Question 1

According to monetarists,the Great Depression in the United States largely resulted from:

Accepted Answer

A)   contractionary fiscal policy.
B)   excessive imports relative to exports.
C)   significant changes in technology and resource availability.
D)   inappropriate monetary policy.E) B) and D)
F) A) and B)

Question 2

Adherents of the traditional monetary rule say that the supply of money should be:

Accepted Answer

A)   increased at a constant rate each year.
B)   decreased during recession and increased during inflation.
C)   held constant over time.
D)   increased during recession and decreased during inflation.E) B) and D)
F) B) and C)

Question 3

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending.Also suppose that all households and consumers would be better off if they did not reduce their spending.This situation best describes the:

Accepted Answer

A)   real-business-cycle theory.
B)   rational expectations theory.
C)   concept of coordination failures.
D)   adaptive expectations theory.E) All of the above
F) A) and C)

Question 4

Nearly all modern economists support the idea of a monetary rule.

Accepted Answer

A) True 
 B)False

Question 5

(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 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

The view that excessive growth of the money supply over long periods leads to inflation:

Accepted Answer

A)   is accepted by the monetarists but not by mainstream macroeconomists.
B)   is the main contribution of the rational expectations theory.
C)   had been absorbed into the mainstream of macroeconomics.
D)   is known as the monetary rule.E) A) and D)
F) C) and D)

Question 9

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending,and a recession results:

Accepted Answer

A)   a self-correction has occurred.
B)   an adverse aggregate supply shock has occurred.
C)   a coordination failure has occurred.
D)   a real-business downturn has occurred.E) A) and B)
F) B) and C)

Question 10

In the equation of exchange,the level of aggregate expenditures is indicated by:

Accepted Answer

A)   MV.
B)   MV/Q.
C)   PM.
D)   MV/P.E) A) and C)
F) A) and B)

Question 11

(Consider This) According to economist Milton Friedman (1912-2006) ,the source of instability in the economy could be thought of as a:

Accepted Answer

A)   baseball manager (the Fed) that removes his starting pitcher too soon and sees a five-run lead evaporate in a single inning.
B)   duck hunter (the Fed) who starts shooting at ducks well before they fly over.
C)   a camp councilor (the Fed) who is wearing a baseball cap that has two bills and says,"I am the leader;which way did they go?"
D)   backseat car passenger (the Fed) who occasionally leans over the front seat and abruptly jerks the steering wheel to the left or to the right.E) All of the above
F) A) and D)

Question 12

The idea that an economy can get stuck in either an unemployment equilibrium or an inflation equilibrium is most closely associated with:

Accepted Answer

A)   new classical economics.
B)   the real-business-cycle theory.
C)   monetarism.
D)   the idea of coordination failures.E) A) and C)
F) All of the above

Question 13

The "real" factors in the real-business-cycle theory include resource availability and technology.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not an aggregate-demand-side explanation of business cycles?

Accepted Answer

A)   The real-business-cycle theory.
B)   The idea of coordination failures.
C)   Mainstream macroeconomics.
D)   Monetarism.E) None of the above
F) B) and C)

Question 15

The proposed monetary rule that would specify how the Fed should respond to changes in GDP and inflation rates is called the:

Accepted Answer

A)   Keynesian rule.
B)   Friedman rule.
C)   Taylor rule.
D)   Lucas rule.E) A) and B)
F) All of the above

Question 16

Adherents of the traditional monetary rule advocate that the:

Accepted Answer

A)   functional finance approach to fiscal policy be adopted.
B)   money supply should be increased by a constant rate year after year.
C)   money supply should be reduced during inflation and increased during recession.
D)   money supply should be increased during inflation and reduced during recession.E) A) and B)
F) B) and C)

Question 17

According to monetarists,a fiscal deficit will be associated with an increase in real output:

Accepted Answer

A)   regardless of the character of accompanying changes in M or V.
B)   only if it is accompanied by an increase in the demand for money.
C)   only if it is accompanied by an increase in the supply of money.
D)   only if it is financed by selling government bonds to the public.E) B) and C)
F) A) and D)

Question 18

The insider-outsider theory implies that:

Accepted Answer

A)   wages are flexible both upward and downward.
B)   unemployment quickly reduces market wages.
C)   agents pursue their own agendas,sometimes at the expense of principals.
D)   wages may be inflexible downward.E) B) and C)
F) A) and C)

Question 19

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

Question 20

In new classical economics,the change in output caused by a "price-level surprise":

Accepted Answer

A)   is shown as a shift of the long-run aggregate supply curve.
B)   does not alter the rate of unemployment,even in the short run.
C)   is soon reversed through a shift of the short-run aggregate supply curve.
D)   permanently changes the rate of unemployment.E) A) and B)
F) C) and D)

Exam 38: Current Issues in Macro Theory and Policy

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

Correct AnswerverifiedShow Answer

An efficiency wage is:

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

Correct AnswerverifiedShow Answer

The view that excessive growth of the money supply over long periods leads to inflation:

Correct AnswerverifiedShow Answer

The insider-outsider theory implies that:

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Nearly all modern economists support the idea of a monetary rule.

Correct AnswerverifiedShow Answer

In new classical economics,the change in output caused by a "price-level surprise":

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According to monetarists,the Great Depression in the United States largely resulted from:

Correct AnswerverifiedShow Answer

When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending,and a recession results:

Correct AnswerverifiedShow Answer

In the equation of exchange,the level of aggregate expenditures is indicated by:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Adherents of the traditional monetary rule say that the supply of money should be:

Correct AnswerverifiedShow Answer

The idea that an economy can get stuck in either an unemployment equilibrium or an inflation equilibrium is most closely associated with:

Correct AnswerverifiedShow Answer

The proposed monetary rule that would specify how the Fed should respond to changes in GDP and inflation rates is called the:

Correct AnswerverifiedShow Answer

The "real" factors in the real-business-cycle theory include resource availability and technology.

Correct AnswerverifiedShow Answer

According to monetarists,a fiscal deficit will be associated with an increase in real output:

Correct AnswerverifiedShow Answer

Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending.Also suppose that all households and consumers would be better off if they did not reduce their spending.This situation best describes the:

Correct AnswerverifiedShow Answer

(Consider This) According to economist Milton Friedman (1912-2006) ,the source of instability in the economy could be thought of as a:

Correct AnswerverifiedShow Answer

Which of the following is not an aggregate-demand-side explanation of business cycles?

Correct AnswerverifiedShow Answer

Adherents of the traditional monetary rule advocate that the:

Correct AnswerverifiedShow Answer

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