Question 1

The equation underlying the mainstream view of macroeconomics is:

Accepted Answer

Ca + Ig + Xn + G = GDP

Question 2

According to mainstream macroeconomists, U.S. macro instability has resulted from:

Accepted Answer

investment \"booms\" and \"busts\" and, occasionally, adverse aggregate supply shocks.

Question 3

The mainstream view of macro instability is that:

Accepted Answer

changes in investment shift the aggregate demand curve and thus cause changes in real GDP.

Question 4

Economist Milton Friedman is most closely associated with:

Accepted Answer

monetarism.

Question 5

Monetarists believe that:

Accepted Answer

velocity is relatively stable.

Question 6

According to monetarists:

Accepted Answer

changes in the money supply are the primary cause of changes in the price level.

Question 7

The basic equation of monetarism is:

Accepted Answer

MV = PQ.

Question 8

According to the equation of exchange, changes in the money supply can affect:

Accepted Answer

both the price level and real output.

Question 9

The velocity of money is the:

Accepted Answer

number of times per year the average dollar is spent on final goods and services.

Question 10

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 above information. Nominal GDP is:

Accepted Answer

200

Question 11

Refer to the above information. If the price level P is 4, Q is:

Accepted Answer

50.

Question 12

Refer to the above information. In equilibrium, Ig is:

Accepted Answer

$20.

Question 13

Most monetarists would say that:

Accepted Answer

the MV = PQ equation provides a better understanding of the macroeconomy than does the Ca + Ig + Xn + G = GDP equation

Question 14

Monetarists say that the relationship between the amount of money which households and businesses want to hold and the level of national output and income:

Accepted Answer

is relatively stable.

Question 15

Monetarist say:

Accepted Answer

a change in the money supply will change aggregate demand and therefore the nominal GDP.

Question 16

As monetarists view the equation of exchange:

Accepted Answer

V is quite stable.

Question 17

Monetarists believe the private economy is inherently:

Accepted Answer

stable and that the government sector should be small.

Question 18

In the equation of exchange the nominal GDP is designated by:

Accepted Answer

PQ.

Question 19

According to monetarists, a change in the money supply changes:

Accepted Answer

aggregate demand which in turn changes the nominal GDP.

Question 20

According to monetarists, the Great Depression in the United States largely resulted from:

Accepted Answer

inappropriate monetary policy.

Question 21

According to real business cycle theory:

Accepted Answer

recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand.

Question 22

Refer to the above diagram. A decline of aggregate supply from ASLR1 to ASLR2, followed by a decline of aggregate demand from AD1 to AD2, would best describe the:

Accepted Answer

real-business-cycle view of recession.

Question 23

Refer to the above diagram. The real-business cycle view of recession would best be described by:

Accepted Answer

a decrease in aggregate supply from ASLR1 to ASLR2, followed by a decrease in aggregate demand from AD1 to AD2.

Question 24

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:

Accepted Answer

idea of coordination failures.

Question 25

New classical economists:

Accepted Answer

hold that, left alone, the economy gravitates to its full employment level of output.

Question 26

Rational expectations theory implies that the:

Accepted Answer

long-run aggregate supply curve is vertical.

Question 27

Refer to the above diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD1 to AD2 will:

Accepted Answer

move the economy directly from a to c.

Question 28

Refer to the above diagram. Rational expectations theory says that a fully anticipated decrease in aggregate demand from AD2 to AD1 will:

Accepted Answer

move the economy directly from c to a.

Question 29

Refer to the above diagram. Suppose that, as expected, aggregate demand declines from AD2 to AD1. A direct move of the economy from c to a would best reflect:

Accepted Answer

new classical economics.

Question 30

New classical economists say that an unanticipated increase in aggregate demand first:

Accepted Answer

increases the price level and real output, and then reduces short-run aggregate supply such that the economy returns to the full-employment level of output.

Question 31

New classical economists say that an unanticipated decrease in aggregate demand first:

Accepted Answer

decreases the price level and real output, and then increases short-run aggregate supply such that the economy returns to the full employment level of output.

Question 32

Refer to the above figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD2 to AD1 would move the economy:

Accepted Answer

from a to e to d.

Question 33

Refer to the above figure and assume the economy initially is in equilibrium at point a. In the new classical theory, a fully anticipated increase in aggregate demand from AD2 to AD1 would move the economy:

Accepted Answer

directly from a to d.

Question 34

Refer to the above figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated decrease in aggregate demand from AD2 to AD3 would move the economy:

Accepted Answer

from a to c to h.

Question 35

Refer to the above figure and assume the economy initially is in equilibrium at point a. In the new classical theory, a fully anticipated decrease in aggregate demand from AD2 to AD3 would move the economy:

Accepted Answer

directly from a to h.

Question 36

Refer to the above diagram and assume the economy initially is in equilibrium at point a. In the mainstream view, a decline in aggregate demand from AD1 to AD2 would likely move the economy:

Accepted Answer

directly from a to b.

Question 37

Refer to the above diagram and assume the economy initially is in equilibrium at point a. Suppose the aggregate demand declines from AD1 to AD2 and the economy moves from a to c. In the mainstream view, the resulting decline in the price level need not shift the short-run aggregate supply curve from AS1 to AS2 because:

Accepted Answer

nominal wages are (at least for a time) inflexible downward.

Question 38

Refer to the above table. At the $8 wage, labor cost per-unit of output is:

Accepted Answer

$2.00.

Question 39

Refer to the above table. The efficiency wage is:

Accepted Answer

9

Question 40

Answer this question on the basis of the above diagram and the equation of exchange. Assume that the velocity of money is constant at 4. Suppose that the increase of aggregate supply from AS1 to AS2 indicates the economy\'s average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by:

Accepted Answer

30 percent per year.

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