Question 1

The key implication for macroeconomic instability is that insider-outsider relationships in the labor market

Accepted Answer

A)  contribute to the downward inflexibility of wages.
B)  help reduce the downward inflexibility of wages.
C)  increase the velocity of money.
D)  reduce the velocity of money.E) C) and D)
F) None of the above

Question 2

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 3

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

Accepted Answer

A) True 
 B)False  False

Question 4

Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will bring about a direct and proportional change in nominal GDP.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Monetarists and rational expectations theorists believe that cost-push inflation is impossible in the long run in the absence of excessive money supply growth.

Accepted Answer

A) True 
 B)False

Question 7

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.E) None of the above
F) C) and D)

Question 8

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and, occasionally, adverse aggregate supply shocks.

Accepted Answer

A) True 
 B)False

Question 9

In the equation of exchange, the nominal GDP is designated by

Accepted Answer

A)  PQ/M.
B)  MV/P.
C)  PQ.
D)  MV.E) A) and D)
F) None of the above

Question 10

New classical economists say that a fully anticipated decrease in aggregate demand

Accepted Answer

A)  shifts the long-run aggregate supply curve to the right.
B)  shifts the long-run aggregate supply curve to the left.
C)  moves the economy down along its vertical long-run aggregate supply curve.
D)  eventually results in a self-correcting increase in aggregate demand.E) A) and B)
F) B) and C)

Question 11

The equation of exchange suggests that, if the supply and velocity of money remain unchanged, an increase in the physical volume of goods and services produced will cause

Accepted Answer

A)  the unemployment rate to rise.
B)  the Federal Reserve Banks to sell securities in the open market.
C)  a decline in the price level.
D)  an automatic budget deficit.E) None of the above
F) B) and C)

Question 12

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

Accepted Answer

A) True 
 B)False  True

Question 13

If the economy's real output is growing by 2.5 percent a year, then, in order to maintain price stability, a monetarist would most likely recommend that money supply should be

Accepted Answer

A)  held constant.
B)  decreased by 1 percent a year.
C)  increased by 2.5 percent a year.
D)  increased by 7.5 percent a year.E) A) and C)
F) A) and D)

Question 14

Economist Milton Friedman is most closely associated with

Accepted Answer

A)  Keynesian economics.
B)  the rational expectations theory.
C)  supply-side economics.
D)  monetarism.E) None of the above
F) All of the above

Question 15

Which of the following is a likely result of firms paying efficiency wages?

Accepted Answer

A)  lesser work effort
B)  a lower wage rate
C)  increased job turnover
D)  reduced supervision costsE) C) and D)
F) B) and D)

Question 16

From a rational expectations perspective, an easy money policy is likely to be completely

Accepted Answer

A)  ineffective unless the increase in the money supply is unanticipated.
B)  effective unless the increase in the money supply is unanticipated.
C)  ineffective unless the increase in the money supply is anticipated.
D)  effective unless the increase in the money supply is anticipated.E) None of the above
F) C) and D) A

Question 17

As monetarists view the equation of exchange,

Accepted Answer

A)  V changes erratically and unpredictably.
B)  V is quite stable.
C)  V usually changes in the same direction of any given change in M.
D)  V usually changes in the opposite direction of any given change in M.E) A) and B)
F) A) and D)

Question 18

The idea that business fluctuations are primarily caused by factors affecting aggregate supply rather than aggregate demand is a central tenet of

Accepted Answer

A)  efficiency wage theory.
B)  real-business-cycle theory.
C)  mainstream economics.
D)  monetarism.E) All of the above
F) A) and C)

Question 19

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) C) and D)
F) All of the above

Question 20

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms.
M = $100 
V = 2
Ca = $160
Xn = $10
G = $10
If the price level P is 4, Q is

Accepted Answer

A)  50.
B)  100.
C)  200.
D)  500.E) B) and C)
F) None of the above

Exam 39: Current Issues in Macro Theory and Policy

The key implication for macroeconomic instability is that insider-outsider relationships in the labor market

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

New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output.

Correct AnswerverifiedFalse

Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will bring about a direct and proportional change in nominal GDP.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monetarists and rational expectations theorists believe that cost-push inflation is impossible in the long run in the absence of excessive money supply growth.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and, occasionally, adverse aggregate supply shocks.

Correct AnswerverifiedShow Answer

In the equation of exchange, the nominal GDP is designated by

Correct AnswerverifiedShow Answer

New classical economists say that a fully anticipated decrease in aggregate demand

Correct AnswerverifiedShow Answer

The equation of exchange suggests that, if the supply and velocity of money remain unchanged, an increase in the physical volume of goods and services produced will cause

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

If the economy's real output is growing by 2.5 percent a year, then, in order to maintain price stability, a monetarist would most likely recommend that money supply should be

Correct AnswerverifiedShow Answer

Economist Milton Friedman is most closely associated with

Correct AnswerverifiedShow Answer

Which of the following is a likely result of firms paying efficiency wages?

Correct AnswerverifiedShow Answer

From a rational expectations perspective, an easy money policy is likely to be completely

Correct AnswerverifiedA

As monetarists view the equation of exchange,

Correct AnswerverifiedShow Answer

The idea that business fluctuations are primarily caused by factors affecting aggregate supply rather than aggregate demand is a central tenet of

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

Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 Ca = $160 Xn = $10 G = $10 If the price level P is 4, Q is

Correct AnswerverifiedShow Answer

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True

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