question

As monetarists view the equation of exchange:

answer

Vis quite stable

question

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

answer

Rational expectations economists

question

In classical theory a decline in aggregate demand will:

answer

reduce the price level, but not the levels of output and employment

question

Assume there is an increase in government spending and a reduction in net taxes. With a specific money supply, the consequent:

answer

expansionary impact might be lessened by the resulting increase in the interest rate

question

The equation underlying the mainstream view of macroeconomics is:

answer

Ca+Ig+Xn+G= GDP.

question

(Consider This) According to economist Milton Friedman (1912-2006), the source of instability in the economy could be thought of as a:

answer

backseat car passenger (the Fed) who occasionally leans over the front seat and abruptly jerks the steering wheel to the left or to the right.

question

Answer the next question(s) on the basis of the following information for a hypothetical economy.All values are in nominal terms.M= $100V= 2Ca= $160Xn= $10G= $10 Refer to the above information. If the price level P is 4,Q is:

answer

50

question

Most mainstream macroeconomists oppose a strict requirement to balance the Federal budget annually because they conclude that such a requirement would:

answer

force government to undertake expansionary fiscal policy during inflation and contractionary fiscal policy during recession.

question

According to monetarists, an expansionary fiscal policy is a weak stabilization tool because:

answer

government borrowing to finance a deficit will raise the interest rate and reduce private investment.

question

(Last Word) The proposed monetary rule that would specify how the Fed should respond to changes in GDP and inflation rates is called the:

answer

Taylor rule

question

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

answer

from a to c to h.

question

Rational expectations theory implies that the:

answer

long-run aggregate supply curve is vertical.

question

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

answer

move the economy directly from a to c

question

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

answer

the velocity of money

question

In comparing monetarism and rational expectations theory we find that:

answer

both favor policy rules, but for different reasons

question

The rational expectations perspective suggests that:

answer

fiscal and monetary policy are not likely to achieve their stated aims

question

A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage:

answer

reduces job turnover

question

Suppose laid off workers and other qualified unemployed workers offer to work for less than the wages being paid existing employed workers, but employers do not hire these workers for fear that existing workers will refuse to cooperate with them. This situation best describes the:

answer

insider-outsider theory.

question

If prices and wages are inflexible downward, a decrease in aggregate demand will:

answer

reduce real output but not the price level.

question

In the insider-outsider theory:

answer

insiders are workers who retain employment during recession.

question

Most monetarists would say that:

answer

all of these are true.

question

In its simplest form, Keynesian theory views the aggregate supply curve as being:

answer

horizontal

question

In the insider-outsider theory:

answer

outsiders are laid off workers and other qualified unemployed workers

question

The mainstream view of macro instability is that:

answer

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

question

(Last Word) The key policy target in the Taylor rule is the:

answer

Federal funds interest rate

question

In classical theory, the full-employment output is determined by the location of the aggregate supply curve while the price level is determined by the location of the aggregate demand curve.

answer

True

question

Mainstream economists say that recessions are unlikely to occur today because prices and wages are highly flexible downward.

answer

False

question

Monetarists say that fiscal policy, such as a tax cut, will only affect the level of real GDP if it entails a change in the supply of money.

answer

True

question

The "real" factors in the real-business cycle theory include resource availability and technology.

answer

True

question

Mainstream macroeconomics has incorporated some aspects of monetarism and rational expectations theory.

answer

True

question

Nearly all modern economists support the idea of a monetary rule.

answer

False

question

In the theory of coordination failures, shifts of the nation's long-run aggregate supply curve are the main cause of business cycles.

answer

False

question

The idea of coordination failures suggests the possibility of less-than-desirable price-level and real-output equilibriums in the economy.

answer

True

question

Efficiency wage theory says that an above-market wage can reduce labor costs per unit of output by eliciting greater work effort, lowering supervision costs, and reducing job turnover.

answer

True

question

In the new classical theory, a fully anticipated change in aggregate demand and the price level will temporarily change real output, but an unanticipated change will not.

answer

False

question

The equation of exchange is MV=PQ.

answer

True

question

In the insider-outsider theory, insiders are agents and outsiders are principals.

answer

False

question

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

answer

True

question

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and, occasionally, adverse aggregate supply shocks.

answer

True

question

The real-business cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor

answer

True

question

At the point where the consumption schedule intersects the 45-degree line:

answer

saving is zero.

question

The given figure suggests that:

answer

as income increases, consumption decreases as a percentage of income

question

Refer to the diagram. The break-even level of income is:

answer

$150.

question

The APC can be defined as the fraction of a:

answer

specific level of total income that is consumed.

question

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

answer

wealth effect.

question

Refer to the given diagram. The economy is dissaving:

answer

at income level H.

question

Refer to the diagram. At disposable income level D, the average propensity to save is equal to:

answer

CD/0D.

question

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

answer

22 percent.

question

One can determine the amount of any level of total income that is consumed by:

answer

multiplying total income by the APC.

question

If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is:

answer

2.

question

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table. The change in income in round two will be:

answer

$16.

question

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:

answer

an increase in personal taxes

question

The immediate determinants of investment spending are the:

answer

expected rate of return on capital goods and the real interest rate.

question

(Advanced analysis) Answer the question on the basis of the following data: Which of the following equations represents the saving schedule implicit in the given data?

answer

S = -40 + .4Yd.

question

The multiplier effect indicates that:

answer

a change in spending will change aggregate income by a larger amount.

question

The 45-degree line on a graph relating consumption and income shows:

answer

all the points at which consumption and income are equal.

question

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

answer

will shift downward.

question

The multiplier effect means that:

answer

an increase in investment can cause GDP to change by a larger amount.

question

(Consider This) During the Great Recession of 2007-2009:

answer

real interest rates and investment spending both declined.

question

(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined. This suggests that:

answer

the investment demand curve shifted inward.

question

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

answer

Higher expected rates of return on investment.

question

The APC is calculated as:

answer

consumption/income.

question

The most important determinant of consumption and saving is the:

answer

level of income.

question

Answer the question on the basis of the following table that illustrates the multiplier process.

answer

.2.

question

Answer the question on the basis of the following table that illustrates the multiplier process.

answer

5.

question

If for some reason households become increasingly thrifty, we could show this by:

answer

an upward shift of the saving schedule.

question

Refer to the given data. At the $200 level of disposable income:

answer

dissaving is $5.

question

At the point where the consumption schedule intersects the 45-degree line:

answer

the APC is 1.00.

question

As disposable income increases, consumption:

answer

and saving both increase.

question

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table. The total change in income resulting from the initial change in investment will be:

answer

$100.

question

Which one of the following will cause a movement down along an economy's consumption schedule?

answer

A decrease in disposable income.

question

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the given data. The marginal propensity to consume in economy (1) is:

answer

.7.

question

The multiplier is defined as:

answer

change in GDP/initial change in spending.

question

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the given data. The marginal propensity to save:

answer

is highest in economy (1).

question

The practical significance of the multiplier is that it:

answer

magnifies initial changes in spending into larger changes in GDP.

question

Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table. The marginal propensity to consume is:

answer

.8.

question

The consumption schedule directly relates:

answer

consumption to the level of disposable income.

question

Refer to the diagram. Consumption equals disposable income when:

answer

disposable income is B.

question

If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:

answer

$5,000 billion.

question

(Advanced analysis) The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:

answer

households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

question

Refer to the given graph. A movement from b to a along C1 might be caused by a(n):

answer

recession.

question

Which of the following is correct?

answer

MPC + MPS = APC + APS.

question

Which of the following is correct?

answer

APC + APS = 1.

question

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n):

answer

wealth effect of an increase in stock market prices.

question

When we draw an investment demand curve, we hold constant all of the following except:

answer

the interest rate.

question

The saving schedule is such that as aggregate income increases by a certain amount, saving:

answer

increases, but by a smaller amount.

question

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the:

answer

MPC is greater in A than in B.

question

Dissaving occurs where:

answer

consumption exceeds income.

question

Answer the question on the basis of the following data for a hypothetical economy. Refer to the given data. At the $100 level of income, the average propensity to save is:

answer

.10.

question

A decline in disposable income:

answer

decreases consumption by moving downward along a specific consumption schedule.

question

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase:

answer

consumption by $80 billion.

question

Investment spending in the United States tends to be unstable because:

answer

profits are highly variable.

question

A $1 billion increase in investment will cause a:

answer

(1/MPS) billion increase in GDP.

question

The MPC for an economy is:

answer

the slope of the consumption schedule or line.

question

(Advanced analysis) The equation for the given saving schedule is:

answer

S = -20 + .2Yd.

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