Question 1

If the nominal GDP is $477 billion and the velocity of money is 4.5,then the money supply is:

Accepted Answer

A)   $122 billion.
B)   $98 billion.
C)   $106 billion.
D)   $477 billion.E) A) and B)
F) None of the above

Question 2

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
Refer to the given information.Nominal GDP is:

Accepted Answer

A)   $100.
B)   $200.
C)   $180.
D)   $50.E) C) and D)
F) All of the above

Question 3

New classical economists say that a fully anticipated increase 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 up along its vertical long-run aggregate supply curve.
D)   eventually results in a self-correcting decrease in aggregate demand.E) C) and D)
F) B) and C)

Question 4

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) None of the above

Question 5

Assume monetary equilibrium exists-that is,the desired and the actual supply of money are equal-when nominal GDP equals $480 billion and the money supply is $160 billion.According to a strict monetarist view,an increase in the money supply of $10 billion will increase the nominal GDP by:

Accepted Answer

A)   $30 billion.
B)   $25 billion.
C)   $20 billion.
D)   $10 billion.E) All of the above
F) C) and D)

Question 6

The equation of exchange indicates that:

Accepted Answer

A)   MV = PQ.
B)   other things equal,an increase in the demand for money will increase P and/or Q.
C)   the velocity and the supply of money vary directly with one another.
D)   MP = VQ.E) A) and D)
F) All of the above

Question 7

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

Question 8

The rational expectations perspective suggests that:

Accepted Answer

A)   fiscal policy is more powerful than monetary policy.
B)   monetary policy is more powerful than fiscal policy.
C)   fiscal and monetary policy are not likely to achieve their stated aims.
D)   fiscal policy works only to the extent that it is accompanied by fully anticipated changes in the money supply.E) None of the above
F) A) and C)

Question 9

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

Question 10

In a full-employment economy,a rise in M will cause inflation unless:

Accepted Answer

A)   V rises in proportion to the increase in M.
B)   the quantity of goods produced declines proportionately.
C)   tax reductions accompany the increase in the money supply.
D)   the velocity of money diminishes.E) All of the above
F) A) and C)

Question 11

Proponents of inflation targeting generally think that:

Accepted Answer

A)   the economy will have fewer,shorter,and less severe business cycles if the Fed holds the rate of inflation to low,targeted levels from year to year.
B)   low interest rates are inflationary and high interest rates are deflationary.
C)   fiscal policy is more effective in stabilizing the economy than monetary policy.
D)   the Fed should strive to achieve zero inflation.E) All of the above
F) B) and D)

Question 12

Most monetarists would say that:

Accepted Answer

A)   the MV = PQ equation provides a better understanding of the macroeconomy than does the Ca + Ig + Xn + G = GDP equation.
B)   most changes in the price level are explainable by changes in the level of real output.
C)   the velocity of money is quite unstable.
D)   all of these are true.E) A) and D)
F) None of the above

Question 13

Which of the following perspectives believes that both wages and prices are stuck in the immediate short run and that prices are inflexible downward but flexible upward?

Accepted Answer

A)   Monetarism.
B)   Mainstream economists.
C)   Rational expectations economists.
D)   None of these-they all see wages and prices as flexible.E) A) and B)
F) A) and C)

Question 14

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

Question 15

Which of the following is a component of the equation of exchange?

Accepted Answer

A)   Consumption.
B)   The interest rate.
C)   Investment.
D)   The velocity of money.E) B) and D)
F) C) and D)

Question 16

Mainstream macroeconomics has embraced the:

Accepted Answer

A)   rational expectations view that stabilization policy is totally ineffective.
B)   monetarist view that the Fed should increase the money supply at a fixed annual rate.
C)   rational expectations view that expectations can shift the aggregate demand and aggregate supply curves.
D)   monetarist view that an increase in government spending crowds out an equal amount of investment spending.E) A) and D)
F) A) and C)

Question 17

Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would:

Accepted Answer

A)   increase real interest rates and drive out investment spending.
B)   eliminate monetary policy as a stabilization tool.
C)   force government to undertake expansionary fiscal policy during inflation and contractionary fiscal policy during recession.
D)   expand the size of the federal government.E) A) and B)
F) All of the above

Question 18

The mainstream view is that macro instability is caused by:

Accepted Answer

A)   erratic growth of the nation's money supply.
B)   government interference in the economy.
C)   significant changes in investment spending.
D)   consumption "booms" and "busts."E) All of the above
F) B) and C)

Question 19

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 20

Monetarists say the velocity of money is highly variable and there is no close link between the money supply and the level of economic activity.

Accepted Answer

A) True 
 B)False

Exam 38: Current Issues in Macro Theory and Policy

Which of the following perspectives believes that both wages and prices are stuck in the immediate short run and that prices are inflexible downward but flexible upward?

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New classical economists say that a fully anticipated increase in aggregate demand:

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The equation of exchange indicates that:

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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

Assume monetary equilibrium exists-that is,the desired and the actual supply of money are equal-when nominal GDP equals $480 billion and the money supply is $160 billion.According to a strict monetarist view,an increase in the money supply of $10 billion will increase the nominal GDP by:

Correct AnswerverifiedShow Answer

Monetarists say the velocity of money is highly variable and there is no close link between the money supply and the level of economic activity.

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The rational expectations perspective suggests that:

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Proponents of inflation targeting generally think that:

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Mainstream economists question the new classical assumption that:

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Which of the following is a component of the equation of exchange?

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New classical economists:

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Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would:

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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 Refer to the given information.Nominal GDP is:

Correct AnswerverifiedShow Answer

Rational expectations theory is based on the assumption that:

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Most monetarists would say that:

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The mainstream view is that macro instability is caused by:

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If the nominal GDP is $477 billion and the velocity of money is 4.5,then the money supply is:

Correct AnswerverifiedShow Answer

Mainstream macroeconomics has embraced the:

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In a full-employment economy,a rise in M will cause inflation unless:

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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

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Answer the question on the basis of the following information for a hypothetical economy.All values are in nominal terms. M = $100 V = 2 C_a = $160 X_n = $10 G = $10 Refer to the given information.Nominal GDP is:

Correct Answer
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