Question 1

Monetarists base their assessment of the speed of adjustment for self-correction in the economy on

Accepted Answer

A)   adaptive expectations.
B)   rational expectations.
C)   coordination failures.
D)   eﬃciency wages.

Question 2

(Last Word)  So-called market monetarists suggest that the Fed, based on economic performance data over the past many decades, should aim for which of the following targets?

Accepted Answer

A)   a 5 percent per year growth in nominal GDP
B)   a 5 percent per year inﬂation rate
C)   a 5 percent unemployment rate
D)   a 5 percent per year expansion of real GDP

Question 3

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".

Question 4

What rationale does rational expectations theory provide for the ineffectiveness of discretionary
policies?

Accepted Answer

Rational expectations theory economists ...

Question 5

(Last Word)  In the aftermath of the Great Recession of 2007-2009, a new breed of "market monetarists" suggested that the Fed and other central banks should use which of the following to
Adjust monetary policy?

Accepted Answer

A)   stock markets
B)   domestic and export markets
C)   predictions markets
D)   labor markets

Question 6

According to monetarists, an expansionary ﬁscal policy

Accepted Answer

A)   will be ineffective because the interest rate will rise and crowd out private investment spending.
B)   should not be permitted so long as a public debt exists.
C)   should be used only when unemployment exceeds 6 percent of the labor force.
D)   will be effective, provided the money supply is held constant.

Question 7

According to mainstream economic analysis, a balanced-budget rule for ﬁscal policy would be

Accepted Answer

A)   countercyclical.
B)   ineffective.
C)   destabilizing.
D)   pro-growth.

Question 8

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.

Question 9

The view that excessive growth of the money supply over long periods leads to inﬂation

Accepted Answer

A)   is accepted by the monetarists but not by mainstream macroeconomists.
B)   is the main contribution of the rational expectations theory.
C)   has been accepted by mainstream macroeconomists.
D)   is known as the monetary rule.

Question 10

One reason the lowest wage rate is not necessarily the same as the eﬃciency wage is that workers might

Accepted Answer

A)   be more productive at a higher wage rate.
B)   have more incentive to shirk at higher wage rates.
C)   be tempted to switch jobs more frequently at higher wage rates.
D)   be less inclined to work well at a higher wage rate.

Question 11

Which of the following groups of economists believe that cost-push inﬂation is impossible in the long run without excessive monetary growth?

Accepted Answer

A)   mainstream economists and monetarists
B)   mainstream economists and rational expectations economists
C)   monetarists and rational expectations economists
D)   mainstream economists, monetarists, and rational expectations economists

Question 12

Mainstream economics views monetary policy as a

Accepted Answer

A)   source of instability, similar to the view of monetarism.
B)   stabilizing factor, similar to the view of monetarism.
C)   source of instability, while monetarism views it as a stabilizing factor.
D)   stabilizing factor, while monetarism views it as a source of instability.

Question 13

What is the supply-side cause of instability according to the mainstream view?

Accepted Answer

Occasionally, external events such as wa...

Question 14

An eﬃciency wage is

Accepted Answer

A)   a below-market wage.
B)   an above-market wage.
C)   a "wage" that contains a proﬁt-sharing component.
D)   a wage that is free to rise or fall from day to day, depending on labor supply and demand.

Question 15

Rational expectations theory assumes that both product and resource markets are competitive and
that wages and prices are ﬂexible.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following ideas is associated with mainstream economics?

Accepted Answer

A)   Capitalist economies tend to be stable.
B)   Monetary policy rules are desirable.
C)   Fiscal policy is a useful stabilization tool.
D)   Crowding-out of investment makes ﬁscal policy ineffective.

Question 17

The idea that the economy will self-correct when confronted with changes in aggregate demand is
associated with new classical economics.

Accepted Answer

A) True 
 B)False

Question 18

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the

Accepted Answer

A)   velocity of money is 5.
B)   money supply is $40 billion.
C)   level of the price index is 320.
D)   equilibrium level of GDP is $320 billion.

Question 19

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 failures

Question 20

According to rational expectations theory, observed instability in the private economy would most likely be due to

Accepted Answer

A)   changes in aggregate supply.
B)   inappropriate monetary policy.
C)   the instability of investment spending in the economy.
D)   unanticipated aggregate demand and aggregate supply shocks in the short run.

Exam 19: Current Issues in Macro Theory and Policy

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

Correct AnswerverifiedShow Answer

What rationale does rational expectations theory provide for the ineffectiveness of discretionary policies?

Correct AnswerverifiedRational expectations theory economists ...View AnswerShow Answer

According to rational expectations theory, observed instability in the private economy would most likely be due to

Correct AnswerverifiedShow Answer

(Last Word) So-called market monetarists suggest that the Fed, based on economic performance data over the past many decades, should aim for which of the following targets?

Correct AnswerverifiedShow Answer

Which of the following ideas is associated with mainstream economics?

Correct AnswerverifiedShow Answer

Mainstream economics views monetary policy as a

Correct AnswerverifiedShow Answer

One reason the lowest wage rate is not necessarily the same as the eﬃciency wage is that workers might

Correct AnswerverifiedShow Answer

Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are ﬂexible.

Correct AnswerverifiedShow Answer

What is the supply-side cause of instability according to the mainstream view?

Correct AnswerverifiedOccasionally, external events such as wa...View AnswerShow Answer

The view that excessive growth of the money supply over long periods leads to inﬂation

Correct AnswerverifiedShow Answer

The mainstream view is that macro instability is caused by

Correct AnswerverifiedShow Answer

According to mainstream economic analysis, a balanced-budget rule for ﬁscal policy would be

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

Which of the following groups of economists believe that cost-push inﬂation is impossible in the long run without excessive monetary growth?

Correct AnswerverifiedShow Answer

If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, then the

Correct AnswerverifiedShow Answer

The idea that the economy will self-correct when confronted with changes in aggregate demand is associated with new classical economics.

Correct AnswerverifiedShow Answer

Monetarists base their assessment of the speed of adjustment for self-correction in the economy on

Correct AnswerverifiedShow Answer

According to monetarists, an expansionary ﬁscal policy

Correct AnswerverifiedShow Answer

An eﬃciency wage is

Correct AnswerverifiedShow Answer

(Last Word) In the aftermath of the Great Recession of 2007-2009, a new breed of "market monetarists" suggested that the Fed and other central banks should use which of the following to Adjust monetary policy?

Correct AnswerverifiedShow Answer

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Rational expectations theory economists ...
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Occasionally, external events such as wa...
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