Chapter 19 Quiz Test Questions – Flashcards
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The equation underlying the mainstream view of macroeconomics is: A) MV=PQ. B) Ca+Ig+Xn+G =GDP. C) S=a-bY. D) GDP=PxQ.
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B
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According to mainstream macroeconomists, U.S. macro instability has resulted from: A) investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks. B) adherence by the Fed to a monetary rule. C) government's attempts to balance its budget. D) widefluctuationsinnetexports.
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A
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Economist Milton Friedman is most closely associated with: A) Keynesian economics. C) supply-side economics. B) the rational expectations theory. D) monetarism.
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D
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According to monetarists: A) changes in the money supply are the primary cause of changes in real output and the price level. B) an expansionary fiscal policy will lower interest rates and overstimulate the economy. C) changes in the velocity of money are more important than changes in the money supply in causing the level of economic activity to change. D) the supply of money changes in response to changes in the levels of real output and prices.
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A
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The basic equation of monetarism is: A) MV=PQ. B) Sa +T+M=Ig +G+Xn C) V=M/PQ. D) Ca +Ig +Xn +G=GDP.
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A
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In the equation of exchange the level of aggregate expenditures is indicated by: A) MV. B) MV/Q. C) PM. D) MV/P.
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A
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According to the equation of exchange, changes in the money supply can affect: A) only the velocity of money. C) only real output and employment. B) both the price level and real output. D) only the price level.
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B
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The velocity of money is the: 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.
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B
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At the equilibrium level of GDP: A) MV=nominalCa+Ig+Xn+G. B) MV=realGDP. C) M=nominalGDP. D) V=1/MPS.
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A
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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: 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) anautomaticbudgetdeficit.
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C
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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: A) circulationperiodofmoneymustbeone-fourthofayear. B) velocity of money is 4. C) average price per final good sold is $3. D) velocityofmoneyis3.
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D
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Monetarists believe the private economy is inherently: A) unstable and the public sector should be small. B) unstable and the public sector should be large. C) stable, but that the public sector should be large. D) stable and that the government sector should be small.
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D
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M = $100 V=2 Ca = $160 Xn = $10 G = $10 Nominal GDP is: A) $100. B) $200. C) $180. D) $50.
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B
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M = $100 V=2 Ca = $160 Xn = $10 G = $10 Refer to the above information. If the price level P is 4, Q is: A) 50. B) 100. C) 200. D) 500.
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A
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According to monetarists, the Great Depression in the United States largely resulted from: A) contractionary fiscal policy. B) excessive imports relative to exports. C) significant changes in technology and resource availability. D) inappropriate monetary policy.
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D
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According to real business cycle theory: A) monetary factors affecting aggregate demand cause macroeconomic instability. B) recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand. C) when real wages fall during recessions, "real" unemployment rates rise. D) thenetlong-run costs of business fluctuations are severe.
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B
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The idea that an economy can get stuck in either an unemployment equilibrium or an inflation equilibrium is most closely associated with: A) new classical economics. C) monetarism. B) the real-business-cycle theory. D) the idea of coordination failures.
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D
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A coordination failure: A) isareal-business-cycleevent. B) is a self-fulfilling prophesy. C) results from the spending-income multiplier. D) is a direct outcome of inappropriate fiscal policy.
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B
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Assume that many households and businesses reduce their spending only because they expect other households and consumers to reduce their spending. Also suppose that all households and consumers would be better off if they did not reduce their spending. This situation best describes the: A) real-business-cycle theory. B) rational expectations theory. C) idea of coordination failures. D) adaptive expectations theory.
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C
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New classical economists: 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 custs as means of increasing aggregate supply. D) advocate active use of monetary policy to stabilize the economy.
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B
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The rational expectations theory assumes that: A) people behave rationally and that all product and resource prices are flexible both upward and downward. B) firms pay above-market wages to elicit work effort. C) markets fail to coordinate the actions of households and businesses. D) markets are dominated by monopolistic firms.
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A
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Rational expectations theory implies that the: 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.
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B
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Mainstream economists question the new classical assumption that: A) excessivegrowthofthemoneysupplyisacauseofinflation. 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.
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D
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An efficiency wage is: 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.
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B
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If firms are paying efficiency wages, they: A) may be reluctant to increase nominal wages when aggregate demand increases. B) are highly vulnerable to import competition. C) may be targeted for takeover by firms paying market wages. D) may be reluctant to cut wages when aggregate demand declines.
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D
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In the insider-outsider theory: A) insiders are workers who retain employment during recession. B) insiders are managers who have more information abut their firms' performance than outsiders. C) insiders are "principals" and outsiders are "agents." D) outsiders are foreigners.
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A
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In the insider-outsider theory: A) outsiders are workers who retain employment during recession. B) insiders are managers who have more information about their firms' performance than outsiders. C) insiders are "principals" and outsiders are "agents." D) outsiders are laid off workers and other qualified unemployedworkers.
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D
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The insider-outsider theory implies that: A) wages are flexible both upward and downward. B) unemployment quickly reduces market wages. C) agents pursue their own agendas, sometimes at the expense of principals. D) wages may be inflexible downward.
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D
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The traditional monetary rule is the idea that: A) the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP. B) the annual rate of increase in the money supply should be equal to the long-term increase in the price level. C) an expansionary fiscal policy should always be accompanied by an easy monetary policy. D) monetary policy only affects the economy 6to9 months after the money supply is changed.
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A
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The crowding-out effect refers to the possibility that: A) when used simultaneously, expansionary fiscal and monetary policies are counterproductive. B) the asset demand for money varies inversely with the interest rate. C) deficit financing will increase the interest rate and reduce investment. D) an increase in the supply of money will result in a decline invelocity.
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C
