Question 1

Monetarists argue that the money supply should

Accepted Answer

A)   grow at a rate equal to the average growth of real output.
B)   grow at a rate slower than the average growth of real output.
C)   grow at a rate greater than the average growth of real output.
D)   be held constant over the business cycle.

Question 2

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow.  Figure 32.2
-Refer to Figure 32.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.

Accepted Answer

A)   Keynesian
B)   the new classical
C)   monetarist
D)   none of the above

Question 3

Which of the following would be considered a supply-side policy?

Accepted Answer

A)   an increase in the minimum wage that would cause consumer spending to increase
B)   an increase in government spending that would lead to increased aggregate demand
C)   investment tax credits for businesses to encourage investment
D)   a decrease in the growth of the money supply

Question 4

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow. 1 to the right. B)  shift AD1 to the right. C)  shift AD1 to the left. D)  not change AD or AS." class="answers-bank-image d-inline" rel="preload" > Figure 32.2
-Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected decrease in taxes would

Accepted Answer

A)   shift AS1 to the right.
B)   shift AD1 to the right.
C)   shift AD1 to the left.
D)   not change AD or AS.

Question 5

If GDP increases and the stock of money does not change, the income velocity of money will increase.

Accepted Answer

A) True 
 B)False

Question 6

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

Accepted Answer

A)   rational expectation theorists.
B)   supply-side economists.
C)   monetarists.
D)   John Maynard Keynes.

Question 7

According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a ________ price surprise will work ________ hours.

Accepted Answer

A)   positive; more
B)   positive; fewer
C)   negative; fewer
D)   negative; the same number of

Question 8

If nominal GDP is $300 billion and the velocity is 3, the stock of money is $900 billion.

Accepted Answer

A) True 
 B)False

Question 9

Keynes believed which of the following?

Accepted Answer

A)   The government has a role to play in fighting inflation, but not in fighting unemployment.
B)   The government has a role to play in fighting unemployment, but not in fighting inflation.
C)   The government does not have a role to play in fighting inflation or unemployment.
D)   The government has a role to play in fighting inflation and unemployment.

Question 10

If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

Accepted Answer

A)   $2.5 billion
B)   $10 billion
C)   $40 billion
D)   $160 billion

Question 11

Keynesians believe the economy can be managed using monetary and fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

Accepted Answer

A)   money demand; inflation rate
B)   money demand; money supply
C)   money supply; price level
D)   money supply; money demand

Question 13

If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

Accepted Answer

A)   0.125.
B)   8.
C)   12.
D)   20.

Question 14

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

Accepted Answer

A)   the monetary schools
B)   the classical school
C)   the Keynesian school
D)   the rational expectation school

Question 15

According to the quantity theory of money, nominal GDP will double if the money supply is

Accepted Answer

A)   reduced by one-half.
B)   reduced threefold.
C)   doubled.
D)   tripled.

Question 16

The Laffer curve shows the relationship between

Accepted Answer

A)   aggregate supply and aggregate demand.
B)   unemployment and inflation.
C)   consumer spending and business spending.
D)   tax rates and tax revenues.

Question 17

The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes

Accepted Answer

A)   will have no effect on the actual price level.
B)   will have no effect on real output.
C)   will have no effect on the expected price level.
D)   will have no effect on nominal output.

Question 18

People are said to have rational expectations if they

Accepted Answer

A)   use all available information in forming their expectations.
B)   assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years.
C)   merely guess at the inflation rate.
D)   assume that this year's inflation rate will be the same as last year's inflation rate.

Question 19

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause

Accepted Answer

A)   the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to decrease.
B)   the interest rate to increase, the quantity demanded of money to decrease, and the velocity of money to increase.
C)   the interest rate to decrease, the quantity demanded of money to decrease, and the velocity of money to increase.
D)   the interest rate to decrease, the quantity demanded of money to increase, and the velocity of money to decrease.

Question 20

Refer to the information provided in Figure 32.2 below to answer the question(s)  that follow. 1 to the right. B)  shift AD1 to the right. C)  shift AD1 to the left. D)  not change AD and AS." class="answers-bank-image d-inline" rel="preload" > Figure 32.2
-Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected decrease in government spending would

Accepted Answer

A)   shift AS1 to the right.
B)   shift AD1 to the right.
C)   shift AD1 to the left.
D)   not change AD and AS.

Exam 32: Alternative Views in Macroeconomics

Which of the following would be considered a supply-side policy?

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Monetarists argue that the money supply should

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If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is

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Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected decrease in government spending would

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.

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Keynes believed which of the following?

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The quantity theory of money implies that a 7% increase in the ________ will eventually cause a 7% increase in the ________.

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Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2 -Refer to Figure 32.2. According to the new classical economists, under rational expectations an expected decrease in taxes would

Correct AnswerverifiedShow Answer

In economics, the concept of active government intervention in the macroeconomy was first emphasized by

Correct AnswerverifiedShow Answer

Which of the following schools of economic thought will recommend an expansionary fiscal policy to reduce the unemployment rate?

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People are said to have rational expectations if they

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According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a ________ price surprise will work ________ hours.

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If real output is $20 billion, the price level is 4, and velocity is 2, what is the stock of money?

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If nominal GDP is $300 billion and the velocity is 3, the stock of money is $900 billion.

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According to the quantity theory of money, nominal GDP will double if the money supply is

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If GDP increases and the stock of money does not change, the income velocity of money will increase.

Correct AnswerverifiedShow Answer

Keynesians believe the economy can be managed using monetary and fiscal policy.

Correct AnswerverifiedShow Answer

Assume that the demand for money depends on the interest rate. A decrease in the money supply will cause

Correct AnswerverifiedShow Answer

The Laffer curve shows the relationship between

Correct AnswerverifiedShow Answer

The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes

Correct AnswerverifiedShow Answer

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The quantity theory of money implies that a 7% increase in the will eventually cause a 7% increase in the .

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According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a price surprise will work hours.

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