Question 1

2 to AD1 would move the economy A)  directly from a to d. B)  from a to b to d. C)  from a to e to d. D)  directly from a to f." class="answers-bank-image d-inline" rel="preload" >
Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD2 to AD1 would move the economy

Accepted Answer

A)   directly from a to d.
B)   from a to b to d.
C)   from a to e to d.
D)   directly from a to f.E) A) and D)
F) A) and C)

Question 2

(Last Word) Discuss the use of prediction markets for adjusting monetary policy.

Accepted Answer

In prediction markets, people place bets...

Question 3

Does velocity change in response to changes in the money supply according to monetarists?

Accepted Answer

No, velocity does not change in response...

Question 4

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 5

According to real-business-cycle theory, recessions are caused by

Accepted Answer

A)   deviations of aggregate supply from long-term growth trends.
B)   monetary factors affecting aggregate demand.
C)   people choosing leisure rather than work.
D)   a decline in the supply of money.E) None of the above
F) B) and C)

Question 6

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

Question 7

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 8

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Accepted Answer

A)   reduce the severity of business cycles.
B)   increase the amount of instability in the economy.
C)   increase the rate of inﬂation.
D)   crowd out much-needed investment spending during times of rapid inﬂation.E) A) and D)
F) All of the above

Question 9

The real-business-cycle theory holds that business ﬂuctuations are caused by

Accepted Answer

A)   factors affecting aggregate demand.
B)   incorrectly anticipated government stabilization policies.
C)   signiﬁcant changes in technology and resource availability.
D)   "stop-and-go" monetary policies.E) A) and B)
F) All of the above

Question 10

Mainstream economists favor

Accepted Answer

A)   the use of discretionary monetary policy and ﬁscal policy.
B)   a monetary rule.
C)   a balanced-budget amendment.
D)   wage and price controls.E) A) and B)
F) A) and C)

Question 11

Mainstream economists question the new classical assumption that

Accepted Answer

A)   excessive growth of the money supply is a cause of inﬂation.
B)   the price level is determined by aggregate demand and aggregate supply.
C)   demand creates its own supply.
D)   wages and prices are equally ﬂexible upward and downward.E) A) and B)
F) All of the above

Question 12

New classical economics suggests that in the long-run, changes in aggregate demand will cause

Accepted Answer

A)   only short-run changes in output and employment.
B)   long-run changes in output and employment.
C)   only short-run changes in the price level.
D)   no change in output and employment.E) B) and D)
F) A) and B)

Question 13

Rational expectations theory is based on the assumption that

Accepted Answer

A)   wages and prices are ﬂexible upward but inﬂexible downward.
B)   both product and resource markets are very competitive.
C)   product markets are competitive, but resource markets are monopolistic.
D)   both product and resource markets are monopolistic.E) A) and B)
F) C) and D)

Question 14

If nominal GDP is $848 billion and the velocity of money is 4, then the

Accepted Answer

A)   money supply is $170 billion.
B)   money supply is $212 billion.
C)   consumer price index is 340.
D)   average level of prices is $170 billion.E) A) and C)
F) B) and C)

Question 15

Monetarists and rational expectations theorists both favor policy rules, and both argue against
discretionary policy.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following ideas of the rational expectations theory has been absorbed into mainstream macroeconomics?

Accepted Answer

A)   the monetary rule
B)   the idea that "money doesn't matter"
C)   the monetary multiplier
D)   the idea that "expectations are important"E) A) and B)
F) None of the above

Question 17

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) B) and D)
F) A) and B)

Question 18

According to economist Milton Friedman, a major reason for macroeconomic instability is

Accepted Answer

A)   tax changes by the Federal government.
B)   spending reductions by the Federal government.
C)   the discretionary monetary policy of the Federal Reserve.
D)   the issuance of bonds by the U.S. Treasury.E) C) and D)
F) B) and C)

Question 19

Monetarists believe the private economy is inherently

Accepted Answer

A)   unstable and the government should take corrective policy actions
B)   unstable and the public sector should be large.
C)   stable but that the public sector should be large.
D)   stable and that the government shouldn't interfere.E) None of the above
F) A) and C)

Exam 19: Current Issues in Macro Theory and Policy

Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD₂ to AD₁ would move the economy

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Rational expectations theory is based on the assumption that

Correct Answer
verified

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Correct Answer
verified

According to real-business-cycle theory, recessions are caused by

Correct Answer
verified

New classical economics suggests that in the long-run, changes in aggregate demand will cause

Correct Answer
verified

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

Correct Answer
verified

According to economist Milton Friedman, a major reason for macroeconomic instability is

Correct Answer
verified

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 Answer
verified

(Last Word) Discuss the use of prediction markets for adjusting monetary policy.

Correct Answer
verified
In prediction markets, people place bets...
View Answer

Which of the following ideas of the rational expectations theory has been absorbed into mainstream macroeconomics?

Correct Answer
verified

Mainstream economists question the new classical assumption that

Correct Answer
verified

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

Correct Answer
verified

Mainstream economists favor

Correct Answer
verified

If nominal GDP is $848 billion and the velocity of money is 4, then the

Correct Answer
verified

Does velocity change in response to changes in the money supply according to monetarists?

Correct Answer
verified
No, velocity does not change in response...
View Answer

Monetarists believe the private economy is inherently

Correct Answer
verified

The real-business-cycle theory holds that business ﬂuctuations are caused by

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD2 to AD1 would move the economy

Correct AnswerverifiedShow Answer

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

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

Rational expectations theory is based on the assumption that

Correct AnswerverifiedShow Answer

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Correct AnswerverifiedShow Answer

According to real-business-cycle theory, recessions are caused by

Correct AnswerverifiedShow Answer

New classical economics suggests that in the long-run, changes in aggregate demand will cause

Correct AnswerverifiedShow Answer

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

Correct AnswerverifiedShow Answer

According to economist Milton Friedman, a major reason for macroeconomic instability is

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

(Last Word) Discuss the use of prediction markets for adjusting monetary policy.

Correct AnswerverifiedIn prediction markets, people place bets...View AnswerShow Answer

Which of the following ideas of the rational expectations theory has been absorbed into mainstream macroeconomics?

Correct AnswerverifiedShow Answer

Mainstream economists question the new classical assumption that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mainstream economists favor

Correct AnswerverifiedShow Answer

If nominal GDP is $848 billion and the velocity of money is 4, then the

Correct AnswerverifiedShow Answer

Does velocity change in response to changes in the money supply according to monetarists?

Correct AnswerverifiedNo, velocity does not change in response...View AnswerShow Answer

Monetarists believe the private economy is inherently

Correct AnswerverifiedShow Answer

The real-business-cycle theory holds that business ﬂuctuations are caused by

Correct AnswerverifiedShow Answer

Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD₂ to AD₁ would move the economy

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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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
verified
In prediction markets, people place bets...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
No, velocity does not change in response...
View Answer

Correct Answer
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Correct Answer
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