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Chapter 39 Current Issues in Macro Theory and Policy Answer Key
Multiple Choice Questions
1.
The equation underlying the mainstream view of macroeconomics is
2.
The mainstream view is that macro instability is caused by
3.
According to mainstream macroeconomists, U.S. macro instability has resulted from
39-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
4.
The mainstream view of macro instability is that
5.
Economist Milton Friedman is most closely associated with
39-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
6.
Monetarists believe that
7.
According to monetarists,
8.
The basic equation of monetarism is
39-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. Ca + Ig + Xn + G = GDP.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
9.
The equation of exchange indicates that
10.
If M is $400, P is $4, and Q is 300, then V must be
39-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
What Causes Macro Instability?
11.
In the equation of exchange, the level of aggregate expenditures is indicated by
12.
According to the equation of exchange, changes in the money supply can affect
13.
The velocity of money is the
39-6
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
14.
If a certain household earns and spends $24,000 per year and, on the average, holds a
money balance of $6,000, then the velocity of money for this household is
15.
Which of the following is a component of the equation of exchange?
16.
The velocity of money measures the
17.
In the equation of exchange, V indicates the
18.
At the equilibrium level of GDP,
39-8
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
19.
The velocity of money is equal to
20.
The velocity of money is equal to
21.
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
39-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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. an automatic budget deficit.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
22.
If the amount of money in circulation is $180 billion and the value of the economy's total
output is $540 billion, then the
23. 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
Nominal GDP is
24. 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
If the price level P is 4, Q is
39-11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
25. 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
In equilibrium, Ig is
26.
Most monetarists would say that
39-12
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
27.
Monetarists say that the relationship between the amount of money that households and
businesses want to hold and the level of national output and income
28.
Monetarists say
29.
To determine the velocity of money, you would need to know
30.
In a full-employment economy, a rise in M will cause inflation unless
31.
As monetarists view the equation of exchange,
39-14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
32.
Monetarists believe the private economy is inherently
33.
In the equation of exchange, the nominal GDP is designated by
34.
If the money supply is constant when both nominal and real GDP are rising, we can
conclude that
39-15
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
tax rates have been increased.
B. the velocity of money must be increasing.
C. interest rates are falling.
D. the unemployment rate is rising.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
35.
If the nominal GDP is $477 billion and the velocity of money is 4.5, then the money supply
is
36.
According to monetarists, a change in the money supply changes
39-16
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
37.
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
38.
According to monetarists, the Great Depression in the United States largely resulted from
39.
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
40.
The real-business-cycle theory holds that business fluctuations are caused by
41.
According to real-business-cycle theory,
39-18
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
42.
In the real-business-cycle theory,
43.
Refer to the 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
44.
Refer to the diagram. The real-business-cycle view of recession would best be described by
39-20
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 39-01 Describe alternative perspectives on the causes of
macroeconomic instability, including the views of mainstream economists, monetarists,
real-business-cycle advocates, and proponents of coordination failures.
Test Bank: I
Topic:
What Causes Macro Instability?
Type: Graph
45.
The real-business-cycle theory
46.
Which of the following is not an aggregate-demand-side explanation of business cycles?
