Question 1

In the rational expectations view,

Accepted Answer

A)  wages are flexible downward but prices are inflexible downward.
B)  prices are flexible downward but wages are inflexible downward.
C)  discretionary policy tends to be countercyclical.
D)  discretionary policy tends to be ineffective.E) C) and D)
F) A) and B)

Question 2

The theory of rational expectations concludes that

Accepted Answer

A)  the public's expectations can influence the outcome of monetary policy but not of fiscal policy.
B)  the public's expectations can influence the outcome of fiscal policy but not of monetary policy.
C)  the public's expectations as to the effects of economic policies tends to reinforce the effectiveness of those policies.
D)  by reacting in its self-interest to the expected effects of stabilization policy, the public tends to negate the impact of those policies.E) A) and D)
F) A) and B)

Question 3

In the equation of exchange, V indicates the

Accepted Answer

A)  value or purchasing power of the dollar.
B)  number of times per year the average dollar is spent.
C)  quantity of real output.
D)  reciprocal of the price level.E) All of the above
F) A) and D)

Question 4

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

Question 5

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) A) and C)

Question 6

Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

Accepted Answer

A)  demand will have a large effect on the price level but a temporary effect on output.
B)  demand will have a small effect on the price level but a permanent effect on output.
C)  demand will have a large effect on the price level and a large effect on output.
D)  supply will have a large effect on the price level but a temporary effect on output.E) A) and B)
F) A) and C)

Question 7

Most economists today would agree with the view that "money doesn't matter" in macroeconomic theory.

Accepted Answer

A) True 
 B)False

Question 8

Under its recent policy of inflation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inflation rate of

Accepted Answer

A)  5 percent.
B)  2 percent.
C)  0 percent.
D)  8 percent.E) C) and D)
F) None 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) A) and C)

Question 10

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) None of the above
F) All of the above

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

Question 12

The idea of coordination failures suggests the possibility of less than desirable price-level and real-output equilibriums in the economy.

Accepted Answer

A) True 
 B)False

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

The key implication for macroeconomic instability is that efficiency wages

Accepted Answer

A)  contribute to the downward inflexibility of wages.
B)  help reduce the downward inflexibility of wages.
C)  increase the velocity of money.
D)  reduce the velocity of money.E) A) and B)
F) B) and D)

Question 15

The rational expectations view that expectations regarding policy and its effects are important to consider

Accepted Answer

A)  serves as the primary rationale for the Laffer Curve.
B)  is now accepted by most mainstream economists.
C)  is consistent with the monetary rule calling for a constant rate of growth in the money supply.
D)  is challenged by research indicating that expectations have little economic effect.E) A) and B)
F) A) and C)

Question 16

The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of

Accepted Answer

A)  monetarism.
B)  real-business-cycle theory.
C)  mainstream economics.
D)  supply-side economics.E) B) and D)
F) None of the above

Question 17

If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

Accepted Answer

A)  circulation period of money must be one-fourth of a year.
B)  velocity of money is 4.
C)  average price per final good sold is $3.
D)  velocity of money is 3.E) None of the above
F) B) and D)

Question 18

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

Question 19

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) All of the above
F) None of the above

Question 20

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

Exam 39: 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.

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

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

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The idea of coordination failures suggests the possibility of less than desirable price-level and real-output equilibriums in the economy.

Correct AnswerverifiedShow Answer

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

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

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The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of

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Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate

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The rational expectations view that expectations regarding policy and its effects are important to consider

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Most economists today would agree with the view that "money doesn't matter" in macroeconomic theory.

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If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the

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In the equation of exchange, V indicates the

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Under its recent policy of inflation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inflation rate of

Correct AnswerverifiedShow Answer

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

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

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The theory of rational expectations concludes that

Correct AnswerverifiedShow Answer

In the rational expectations view,

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In the view of rational expectations theory,

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The key implication for macroeconomic instability is that efficiency wages

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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