question

The mainstream view is that macro instability is caused by:

answer

significant changes in investment spending.

question

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

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

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Monetarists believe that:

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velocity is relatively stable

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The basic equation of monetarism is:

answer

MV = PQ.

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In the equation of exchange, the level of aggregate expenditures is indicated by:

answer

MV

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The velocity of money is the:

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

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Which of the following is a component of the equation of exchange?

answer

the velocity of money

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At the equilibrium level of GDP:

answer

MV = nominal GDP.

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The velocity of money is equal to:

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nominal GDP/M.

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Most monetarists would say that:

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

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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:

answer

is relatively stable.

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As monetarists view the equation of exchange:

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V is quite stable.

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Monetarists believe the private economy is inherently:

answer

stable and that the government sector should be small.

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

answer

PQ

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The view that inappropriate monetary policy was the main reason for the depth of the Great Depression in the United States is most closely associated with:

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monetarism.

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New classical economists:

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

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Rational expectations theory is based on the assumption that:

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both product and resource markets are very competitive.

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Rational expectations theory assumes that:

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people behave rationally and that all product and resource prices are flexible both upward and downward.

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According to new classical economists, the:

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long-run aggregate supply curve is vertical.

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An efficiency wage is:

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an above-market wage that minimizes a firm's labor cost per unit of output.

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Mainstream economists question the new classical assumption that:

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wages and prices are equally flexible upward and downward.

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In the insider-outsider theory, insiders are:

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workers who retain employment during recession.

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In the insider-outsider theory, outsiders are:

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laid off workers and other qualified unemployed workers.

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Which of the following pairs help explain why self-correction from a decline in aggregate demand in the economy may be slow rather than rapid?

answer

Efficiency wage theory; insider-outsider theory.

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Monetarists and rational expectations theorists generally agree that:

answer

the Federal Reserve should adhere to a monetary rule.

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According to monetarists, an expansionary fiscal policy:

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will be ineffective because the interest rate will rise and crowd out private investment spending.

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Over recent years, economists holding monetarist views have replaced their call for a monetary rule with a call for:

answer

inflation targeting

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Which of the following groups of economists is most likely to favor annually balanced Federal budgets?

answer

Rational expectations economists

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Mainstream economists favor:

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the use of discretionary monetary policy and fiscal policy.

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

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had been absorbed into the mainstream of macroeconomics.

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Mainstream macroeconomics has embraced the:

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rational expectations view that expectations can shift the aggregate demand and aggregate supply curves.

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Which of the following perspectives believes that both wages and prices are stuck in the immediate short run, and that prices are inflexible downward but flexible upward?

answer

Mainstream economists

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

answer

Monetarists and rational expectations economists

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The idea that business fluctuations are primarily caused by factors affecting aggregate supply rather than aggregate demand is a central tenet of:

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Real business cycle theory

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The equation of exchange indicates that:

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Other things being equal, an increase in V will increase P and/or Q

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According to mainstream economists, which will contribute to the downward inflexibility of wages when aggregate demand declines?

answer

Insider-Outsider relationships

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From a monetarist perspective, a contractionary fiscal policy might be offset by:

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The buying of government securities by the federal reserve

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According to real business cycle theory:

answer

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

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In new classical economics, the change in output caused by a price-level surprise:

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is soon reversed through a shift of the short-run aggregate supply curve

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The crowding out effect refers to the possibility that:

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Deficit financing will increase the interest rate and reduce investment

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Mainstream economists contend that, as stabilization tools:

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Both discretionary fiscal policy and monetary policy can be effective if appropriately used

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In the long run when both input and output prices are fully flexible,

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the economy will produce at potential output.

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Rapid increases in M cause

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inflation

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In the real-business-cycle theory, shifts of the economy's long-run aggregate supply curve change

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real output.

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In turn of the change of real output, money demand and money supply change,

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shifting the aggregate demand curve in the same direction as the initial change in long-run aggregate supply.

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A coordination failure is said to occur when

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people lack a way to coordinate their actions in order to achieve a mutually beneficial equilibrium.

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Depending on people's expectations, the economy can come to rest at either

answer

a good equilibrium(non-inflationary full-employment output) or a bad equilibrium (less-than-full employment output or demand-pull inflation).

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A bad equilibrium is a result of

answer

Coordination Failure

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In RET, unanticipated changes in aggregate demand

answer

change the price level, and in the short run this leads firms to change output.

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Anitcipated changes in aggregate demand produce only changes in the price level, not changes in

answer

real output.

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Mainstream economists reject the new classical view that all prices and wages are

answer

flexible downward

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An alternative approach-inflation targeting- would direct the Fed to establish a

answer

targeted range of inflation rates, say, 1 to 2 percent, and focus monetary policy on meeting that goal.

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