Question 1

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

Question 2

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.E) B) and D)
F) A) and D)

Question 3

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.E) A) and B)
F) A) and C)

Question 4

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.E) All of the above
F) B) and D)

Question 5

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

Question 6

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

Accepted Answer

Milton Friedman, a prominent monetarist,...

Question 7

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 8

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.E) B) and C)
F) All of the above

Question 9

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 10

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 11

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.E) None of the above
F) A) and B)

Question 12

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) None of the above
F) All of the above

Question 13

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.E) None of the above
F) A) and B)

Question 14

The velocity of money is equal to

Accepted Answer

A)     1/MPS. 	ext { 1/MPS. } 1/MPS.  
B)     nominal GDP/M. 	ext { nominal GDP/M. } nominal GDP/M.  
C)    1/ reserve ratio. 1 / 	ext { reserve ratio. }1/ reserve ratio.  
D)     nominal GDP/P. 	ext { nominal GDP/P. } nominal GDP/P. E) None of the above
F) B) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Refer to the graph. Assume that the economy is in initial equilibrium where AD  AD1A D _ { 1 }AD1​  intersects A
 AS1A S _ {1 }AS1​  . If
There is an anticipated increase in aggregate demand to AD
 AD2A D _ { 2 }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 B. E) None of the above
F) B) and D)

Question 20

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.E) A) and B)
F) A) and C)

Exam 19: Current Issues in Macro Theory and Policy

The mainstream view of macro instability is that

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The velocity of money is equal to

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified
Monetarists and other new classical econ...
View Answer

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

Correct Answer
verified
Milton Friedman, a prominent monetarist,...
View Answer

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

Correct Answer
verified

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 Answer
verified

Correct Answer
verified

To stabilize the economy, monetarists and rational expectations economists

Correct Answer
verified

The most likely advocates for a monetary rule would be

Correct Answer
verified

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

Correct Answer
verified

In the view of rational expectations theory,

Correct Answer
verified

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

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

The mainstream view of macro instability is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The velocity of money is equal to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedMonetarists and other new classical econ...View AnswerShow Answer

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

Correct AnswerverifiedMilton Friedman, a prominent monetarist,...View AnswerShow 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

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

Correct AnswerverifiedShow Answer

To stabilize the economy, monetarists and rational expectations economists

Correct AnswerverifiedShow Answer

The most likely advocates for a monetary rule would be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the view of rational expectations theory,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Monetarists and other new classical econ...
View Answer

Correct Answer
verified
Milton Friedman, a prominent monetarist,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified