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47.
When most consumers and firms reduce spending only because they expect other consumers
and firms to reduce spending, and a recession results,
48.
A coordination failure
49.
The idea that an economy can get stuck in either an unemployment equilibrium or an
inflation equilibrium is most closely associated with
39-22
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?
50.
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
51.
New classical economists
39-23
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
Does the Economy Self-Correct?
52.
Rational expectations theory is based on the assumption that
53.
Rational expectations theory implies that the
54.
Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate
demand from AD1 to AD2 will
55.
Refer to the diagram. Rational expectations theory says that a fully anticipated decrease in
aggregate demand from AD2 to AD1 will
56.
Refer to the 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
57. Rational expectations theory assumes that
39-27
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: 39-02 Discuss why new classical economists believe the economy
will " self-correct" from aggregate demand and aggregate supply shocks.
Test Bank: I
Topic:
Does the Economy Self-Correct?
58. According to new classical economists, the
59. New classical economists say that an unanticipated increase in aggregate demand first
60. New classical economists say that an unanticipated decrease in aggregate demand first
39-28
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. 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.
61. New classical economists say that a fully anticipated increase in aggregate demand
62. New classical economists say that a fully anticipated decrease in aggregate demand
63.
Refer to the 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
64.
Refer to the 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
65.
Refer to the 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
66.
Refer to the 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
67.
In new classical economics, a "price-level surprise"
39-33
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: 39-02 Discuss why new classical economists believe the economy
will " self-correct" from aggregate demand and aggregate supply shocks.
Test Bank: I
Topic:
Does the Economy Self-Correct?
68.
In new classical economics, the change in output caused by a "price-level surprise"
69.
Suppose that, as expected, aggregate demand in the economy sharply declines. New
classical economists say that the price level will and real output will _.
70.
Mainstream economists question the new classical assumption that
39-34
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. wages and prices are equally flexible upward and downward.
71.
Suppose aggregate demand in the economy sharply declines. Mainstream economists say
that the price level (at least for a time) will and real output will .
72.
Refer to the 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
73.
39-36
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: 39-02 Discuss why new classical economists believe the economy
will " self-correct" from aggregate demand and aggregate supply shocks.
Test Bank: I
Topic:
Does the Economy Self-Correct?
Type: Graph
74.
If prices and wages are inflexible downward, a decrease in aggregate demand will
75.
An efficiency wage is
76.
An efficiency wage is
77.
Hourly
Wage Rate
Output Per Hour
Of Work
$10
6
9
6
8
4
7
2
6
1
Refer to the table. At the $8 wage, labor cost per unit of output is
39-38
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
Learning Objective: 39-02 Discuss why new classical economists believe the economy
will " self-correct" from aggregate demand and aggregate supply shocks.
Test Bank: I
Topic:
Does the Economy Self-Correct?
To p i c:
What Causes Macro Instability?
Type: Table
78.
Hourly
Wage Rate
Output Per Hour
Of Work
$10
6
9
6
8
4
7
2
6
1
Refer to the table. The efficiency wage is
79. A higher wage could result in a lower labor cost per unit of output than a lower wage if the
higher wage
80. A higher wage could result in a lower labor cost per unit of output than a lower wage if the
higher wage
81. If firms are paying efficiency wages, they
39-40
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
are highly vulnerable to import competition.
C.
may be targeted for takeover by firms paying market wages.
D. may be reluctant to cut wages when aggregate demand declines.
82. In the insider-outsider theory,
83. In the insider-outsider theory,
