978-1259723223 Test Bank TBChap039 Part 1

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

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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

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

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written consent of McGraw-Hill Education.

D. Ca + Ig + Xn + G = GDP.

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A c c e s s i b i l i t y :

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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

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

written consent of McGraw-Hill Education.

A c c e s s i b i l i t y :

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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

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

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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

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

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

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

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 :

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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

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

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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

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?