Question 1

Which of the following pairs helps explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

Accepted Answer

A)   theory of compensation wage differentials; theory of derived demand for labor
B)   eﬃciency wage theory; minimum wage laws
C)   insider-outsider theory; principle-agent problem
D)   externalities; eﬃciency wage theoryE) A) and B)
F) All of the above

Question 2

New classical economists

Accepted Answer

A)   stress the importance of federal budget deﬁcits in stimulating aggregate demand.
B)   hold that, left alone, the economy gravitates to its full-employment level of output.
C)   emphasize tax cuts as means of increasing aggregate supply.
D)   advocate active use of monetary policy to stabilize the economy.E) C) and D)
F) B) and C)

Question 3

The velocity of money is equal to

Accepted Answer

A)     1/MPS. 	ext { 1/MPS. } 1/MPS.  
B)    1/ reserve ratio. 1 / 	ext { reserve ratio. }1/ reserve ratio.  
C)    M/GDPM / G D PM/GDP 
D)   none of these. E) A) and B)
F) B) and D)

Question 4

In new classical economics, a "price-level surprise"

Accepted Answer

A)   has no effect on the economy.
B)   causes a temporary change in real output.
C)   causes a permanent change in real output.
D)   can never occur since people correctly anticipate the future.E) B) and C)
F) C) and D)

Question 5

Mainstream economists say that recessions are unlikely to occur today because prices and wages
are highly ﬂexible downward.

Accepted Answer

A) True 
 B)False

Question 6

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) A) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Discuss the Federal Reserve's policy of inﬂation targeting.

Accepted Answer

In 2012, the Federal Reserve adopted a p...

Question 9

The mainstream view of the economy since 1946 is that it has become more stable because of the
use of discretionary ﬁscal and monetary policies.

Accepted Answer

A) True 
 B)False

Question 10

Rational expectations theory suggests that changes in people's expectations in response to
changes in ﬁscal and monetary policy changes will make such policy changes ineffective.

Accepted Answer

A) True 
 B)False

Question 11

In the mainstream view, one major source of instability in the macroeconomy is the volatility of

Accepted Answer

A)   product prices.
B)   investment spending.
C)   consumer spending.
D)   labor wages.E) A) and B)
F) None of the above

Question 12

Describe the mainstream view of self-correction in the economy.

Accepted Answer

Mainstream economists say the economy wi...

Question 13

Mainstream economists have adopted some ideas from RET, and some rational expectations
assumptions are being incorporated into current macroeconomic models.

Accepted Answer

A) True 
 B)False

Question 14

Hourly Wage  Rate  Output per Hour of  Work $10696847261\begin{array} { | c | c | } \hline \begin{array} { c } 	ext { Hourly Wage } \	ext { Rate }\end{array} & \begin{array} { c } 	ext { Output per Hour of } \	ext { Work }\end{array} \\hline \$ 10 & 6 \\hline 9 & 6 \\hline 8 & 4 \\hline 7 & 2 \\hline 6 & 1 \\hline\end{array} Hourly Wage  Rate ​$109876​ Output per Hour of  Work ​66421​​  Refer to the table. At the $8 wage, labor cost per unit of output is

Accepted Answer

A)   $1.25.
B)   $1.50.
C)   $2.00.
D)   $1.67. E) None of the above
F) C) and D)

Question 15

The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n)

Accepted Answer

A)   decrease in the money supply will increase the price level.
B)   increase in the money supply will decrease the price level.
C)   increase in the money supply will increase the price level.
D)   decrease in the money supply will have no effect on the price level.E) A) and B)
F) A) and C)

Question 16

The velocity of money is the

Accepted Answer

A)   relationship between the money supply and the price level.
B)   number of times per year the average dollar is spent on ﬁnal goods and services.
C)   relationship between asset and transactions demands for money.
D)   price level divided by aggregate supply.E) None of the above
F) C) and D)

Question 17

Deﬁne rational expectations theory.

Accepted Answer

Rational expectations theory is a hypoth...

Question 18

Rational expectations theory implies that the

Accepted Answer

A)   aggregate demand curve is vertical.
B)   long-run aggregate supply curve is vertical.
C)   long-run aggregate supply curve is horizontal.
D)   long-run aggregate supply curve is quite ﬂat.E) A) and B)
F) A) and C)

Question 19

Monetarists argue that the amount of money the public will want to hold depends primarily on the level of

Accepted Answer

A)   nominal GDP.
B)   investment.
C)   consumption.
D)   prices.E) B) and C)
F) All of the above

Question 20

A coordination failure

Accepted Answer

A)   is a real-business-cycle event.
B)   is a self-fulﬁlling prophesy.
C)   results from the spending-income multiplier.
D)   is a direct outcome of inappropriate ﬁscal policy.E) B) and D)
F) A) and C)

Exam 19: Current Issues in Macro Theory and Policy

Which of the following pairs helps explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

Correct Answer
verified

In new classical economics, a "price-level surprise"

Correct Answer
verified

Monetarists argue that the amount of money the public will want to hold depends primarily on the level of

Correct Answer
verified

New classical economists

Correct Answer
verified

Mainstream economists say that recessions are unlikely to occur today because prices and wages are highly ﬂexible downward.

Correct Answer
verified

The velocity of money is equal to

Correct Answer
verified

Discuss the Federal Reserve's policy of inﬂation targeting.

Correct Answer
verified
In 2012, the Federal Reserve adopted a p...
View Answer

Rational expectations theory suggests that changes in people's expectations in response to changes in ﬁscal and monetary policy changes will make such policy changes ineffective.

Correct Answer
verified

The velocity of money is the

Correct Answer
verified

The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n)

Correct Answer
verified

In the mainstream view, one major source of instability in the macroeconomy is the volatility of

Correct Answer
verified

Describe the mainstream view of self-correction in the economy.

Correct Answer
verified
Mainstream economists say the economy wi...
View Answer

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

Correct Answer
verified

Rational expectations theory implies that the

Correct Answer
verified

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

Correct Answer
verified

Mainstream economists have adopted some ideas from RET, and some rational expectations assumptions are being incorporated into current macroeconomic models.

Correct Answer
verified

Deﬁne rational expectations theory.

Correct Answer
verified
Rational expectations theory is a hypoth...
View Answer

Correct Answer
verified

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary ﬁscal and monetary policies.

Correct Answer
verified

A coordination failure

Correct Answer
verified

Exam 19: Current Issues in Macro Theory and Policy

Which of the following pairs helps explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

Correct AnswerverifiedShow Answer

In new classical economics, a "price-level surprise"

Correct AnswerverifiedShow Answer

Monetarists argue that the amount of money the public will want to hold depends primarily on the level of

Correct AnswerverifiedShow Answer

New classical economists

Correct AnswerverifiedShow Answer

Mainstream economists say that recessions are unlikely to occur today because prices and wages are highly ﬂexible downward.

Correct AnswerverifiedShow Answer

The velocity of money is equal to

Correct AnswerverifiedShow Answer

Discuss the Federal Reserve's policy of inﬂation targeting.

Correct AnswerverifiedIn 2012, the Federal Reserve adopted a p...View AnswerShow Answer

Rational expectations theory suggests that changes in people's expectations in response to changes in ﬁscal and monetary policy changes will make such policy changes ineffective.

Correct AnswerverifiedShow Answer

The velocity of money is the

Correct AnswerverifiedShow Answer

The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n)

Correct AnswerverifiedShow Answer

In the mainstream view, one major source of instability in the macroeconomy is the volatility of

Correct AnswerverifiedShow Answer

Describe the mainstream view of self-correction in the economy.

Correct AnswerverifiedMainstream economists say the economy wi...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Rational expectations theory implies that the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mainstream economists have adopted some ideas from RET, and some rational expectations assumptions are being incorporated into current macroeconomic models.

Correct AnswerverifiedShow Answer

Deﬁne rational expectations theory.

Correct AnswerverifiedRational expectations theory is a hypoth...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary ﬁscal and monetary policies.

Correct AnswerverifiedShow Answer

A coordination failure

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In 2012, the Federal Reserve adopted a p...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Mainstream economists say the economy wi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Rational expectations theory is a hypoth...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified