Question 1

1 and AS1. Suppose that there is economic growth which shifts AS1 to AS2. Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might: A)  Increase and cause the aggregate demand curve to shift from AD1 to AD4 B)  Decrease and cause the investment demand curve to shift from AD1 to AD4 C)  Increase and cause the aggregate demand curve to shift from AD1 to AD2 D)  Decrease and cause the investment demand curve to shift from AD1 to AD2" 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. Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might:

Accepted Answer

A)   Increase and cause the aggregate demand curve to shift from AD1 to AD4
B)   Decrease and cause the investment demand curve to shift from AD1 to AD4
C)   Increase and cause the aggregate demand curve to shift from AD1 to AD2
D)   Decrease and cause the investment demand curve to shift from AD1 to AD2E) A) and D)
F) A) and C)

Question 2

In the monetarist view:

Accepted Answer

A)   Changes in investment spending are a major source of macroeconomic instability
B)   Inappropriate monetary policy is a major source of macroeconomic stability
C)   Adverse aggregate supply shocks are a major source of macroeconomic instability
D)   The fact that prices and wages are flexible is a major source of macroeconomic instabilityE) None of the above
F) A) and D)

Question 3

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)   MonetarismE) B) and C)
F) All of the above

Question 4

The Taylor rule is a:

Accepted Answer

A)   Strictly passive approach to monetary policy
B)   Strictly activist approach to monetary policy
C)   Combined passive and activist approach to monetary policy
D)   Coordination directive for monetary and fiscal policyE) B) and D)
F) None of the above

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

1 intersects AS1. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point: A)  A directly to B B)  A to B to C C)  B to A to D D)  A to B to C to D" 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 unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point:

Accepted Answer

A)   A directly to B
B)   A to B to C
C)   B to A to D
D)   A to B to C to DE) None of the above
F) B) and D)

Question 7

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Accepted Answer

A) True 
 B)False

Question 8

Rational expectations theory considers the aggregate:

Accepted Answer

A)   Demand curve to be vertical
B)   Supply curve to be vertical
C)   Supply curve to be horizontal
D)   Demand curve to be horizontalE) A) and B)
F) A) and C)

Question 9

1 intersects AS1. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will: A)  Self-correct through a shift in AS, which brings output back to Q1 B)  Self-correct through a shift in AD, which brings output back to Q1 C)  Need the government to implement expansionary policy in order to bring output back to Q1 D)  Need the government to implement contractionary policy in order to bring output back to Q1" 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 unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will:

Accepted Answer

A)   Self-correct through a shift in AS, which brings output back to Q1
B)   Self-correct through a shift in AD, which brings output back to Q1
C)   Need the government to implement expansionary policy in order to bring output back to Q1
D)   Need the government to implement contractionary policy in order to bring output back to Q1E) B) and C)
F) A) and C)

Question 10

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Accepted Answer

A) True 
 B)False

Question 11

1 and AS1. Suppose that there is economic growth which shifts AS1 to AS2. With the shift from AS1 to AS2, the monetary rule would call for an increase in the money supply such that: A)  AD1 would shift to AD2 B)  AD1 would shift to AD3 C)  AD1 would shift to AD4 D)  AS2 would shift to AS1" 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. With the shift from AS1 to AS2, the monetary rule would call for an increase in the money supply such that:

Accepted Answer

A)   AD1 would shift to AD2
B)   AD1 would shift to AD3
C)   AD1 would shift to AD4
D)   AS2 would shift to AS1E) All of the above
F) B) and C)

Question 12

One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might:

Accepted Answer

A)   Be more productive at a higher wage rate
B)   Have more incentive to shirk at higher wage rates
C)   Be tempted to switch jobs more frequently at higher wage rates
D)   Be less inclined to work well at a higher wage rateE) C) and D)
F) B) and D)

Question 13

Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

Accepted Answer

A)   Monetarism
B)   Mainstream economics
C)   Rational expectations
D)   New classical economicsE) A) and D)
F) None of the above

Question 15

Which of the following contributes to the downward inflexibility of wages, according to mainstream economists?

Accepted Answer

A)   Efficiency wages
B)   A monetary rule
C)   Price-level surprises
D)   Coordination failuresE) C) and D)
F) All of the above

Question 16

From the mainstream perspective, instability in the economy is due to:

Accepted Answer

A)   Price flexibility, and shocks to either aggregate demand or aggregate supply
B)   Price stickiness, and shocks to either aggregate demand or aggregate supply
C)   Price flexibility, and government policies and regulation
D)   Price stickiness, and government policies and regulationE) B) and C)
F) B) and D)

Question 17

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 anticipatedE) A) and B)
F) A) and C)

Question 18

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

Accepted Answer

A) True 
 B)False

Question 19

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor.

Accepted Answer

A) True 
 B)False

Question 20

If M is $1,000, P is $8, and Q is 500, then V must be 6.

Accepted Answer

A) True 
 B)False

Exam 19: Current Issues in Macro Theory and Policy

Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.

Correct Answer
verified

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point:

Correct Answer
verified

If M is $1,000, P is $8, and Q is 500, then V must be 6.

Correct Answer
verified

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

Correct Answer
verified

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated decrease in aggregate demand to AD₂, then in the view of new classical economics the economy will:

Correct Answer
verified

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor.

Correct Answer
verified

From the mainstream perspective, instability in the economy is due to:

Correct Answer
verified

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Correct Answer
verified

The Taylor rule is a:

Correct Answer
verified

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. With the shift from AS₁ to AS₂, the monetary rule would call for an increase in the money supply such that:

Correct Answer
verified

Correct Answer
verified

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Correct Answer
verified

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

Correct Answer
verified

Which of the following contributes to the downward inflexibility of wages, according to mainstream economists?

Correct Answer
verified

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

Correct Answer
verified

In the monetarist view:

Correct Answer
verified

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

Correct Answer
verified

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

Correct Answer
verified

Rational expectations theory considers the aggregate:

Correct Answer
verified

One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might:

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point:

Correct AnswerverifiedShow Answer

If M is $1,000, P is $8, and Q is 500, then V must be 6.

Correct AnswerverifiedShow Answer

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will:

Correct AnswerverifiedShow Answer

Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor.

Correct AnswerverifiedShow Answer

From the mainstream perspective, instability in the economy is due to:

Correct AnswerverifiedShow Answer

Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output.

Correct AnswerverifiedShow Answer

The Taylor rule is a:

Correct AnswerverifiedShow Answer

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. With the shift from AS1 to AS2, the monetary rule would call for an increase in the money supply such that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following contributes to the downward inflexibility of wages, according to mainstream economists?

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

In the monetarist view:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy.

Correct AnswerverifiedShow Answer

Rational expectations theory considers the aggregate:

Correct AnswerverifiedShow Answer

One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated decrease in aggregate demand to AD₂, then in the view of new classical economics the economy will:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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. With the shift from AS₁ to AS₂, the monetary rule would call for an increase in the money supply such that:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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