978-1259723223 Test Bank TBChap039 Part 4

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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?

134. 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.

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

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

137. 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.

138. From the mainstream perspective, instability in the economy is due to

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Topic:

What Causes Macro Instability?

139. In the mainstream view, one major source of instability in the macroeconomy is the

volatility of

140. In the mainstream view, the economic instability brought about by “oil shocks” works

through changes in

141. Which of the following is the basic equation underlying aggregate expenditures?

142. According to mainstream economists, the basic determinant of real output, employment,

and the price level is

143. In the monetarist view,

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Topic:

What Causes Macro Instability?

144. The view that changes in the money supply are the primary cause of change in real output

and the price level is most closely associated with

145. From a monetarist perspective, instability in the macroeconomy arises from

146. The equation of exchange is

39–66

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: II

Topic:

What Causes Macro Instability?

147. Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to

obtain the

148. The average number of times per year that a dollar bill is used to pay for final goods and

services is the

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Topic:

What Causes Macro Instability?

149. Given the equation of exchange, if V is stable, an increase in M will necessarily increase

150. The equation of exchange indicates that

151. In the monetarist equation of exchange, MV is the monetarist counterpart of

39–68

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: II

Topic:

What Causes Macro Instability?

152. Monetarists argue that the amount of money the public will want to hold depends

primarily on the level of

153. The equation of exchange suggests that if the velocity of money and the quantity of goods

and services are held constant, a(n)

154. In the strict monetarist view, a large increase in the money supply will have

155. Monetarists argue that the relationship between

156. If the velocity of money remains unchanged and the economy is at full employment, then

the equation of exchange predicts that a rise in the money supply will

39–70

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: II

Topic:

What Causes Macro Instability?

157. Mainstream economics views monetary policy as a

158. If the amount of money in circulation is $8 billion and the value of total output is $40

billion in an economy, then the

159. Assume monetary equilibrium exists; that is, the desired and actual supply of money are

equal. Also assume that nominal GDP equals $960 billion and the money supply is $160

billion. From a strict monetarist view,

an increase in the money supply by $12 billion will

increase nominal GDP by

160. If nominal GDP is $848 billion and the velocity of money is 4, then the

161. If M is $800, P is $2, and Q is 1,200, then

39–72

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: II

Topic:

What Causes Macro Instability?

162. If the money supply rises from $600 billion to $800 billion and nominal GDP stays

unchanged at $4,800 billion, then the income velocity of money

163. If money supply is $800 billion and nominal GDP is $2 trillion, then the average number

of times that money is spent and changes hands is

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written consent of McGraw-Hill Education.

Topic:

What Causes Macro Instability?

164. Assume that M is $200 billion and V is 6. If V increases by 15 percent, then, according to

the monetarist equation, nominal GDP will have increased by

165. In the mainstream view, the severe recession of 2007–2009 was caused by

166. Monetarists would argue that the severe recession of 2007–2009 was primarily caused by

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C. excessive money supply creating a bubble in some sectors of the economy.

D. too much deregulation of the financial sector in previous years.

167. Real-business-cycle theory focuses on factors affecting

168. Real-business-cycle theory suggests that changes in

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macroeconomic instability, including the views of mainstream economists, monetarists,

real-business-cycle advocates, and proponents of coordination failures.

Test Bank: II

Topic:

What Causes Macro Instability?

169. According to real-business-cycle theory, recessions are caused by

170. The idea that business fluctuations are primarily caused by factors affecting aggregate

supply rather than aggregate demand is a central tenet of

171. In the view of real-business-cycle theory, an increase in the long-run aggregate supply

would lead to a(n)

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price level would be unchanged.

B. increase in aggregate demand by an equal amount, so real output and the price level would

increase.

C. decrease in aggregate demand, so real output would increase and the price level would

decrease.

D. decrease in aggregate demand, so real output and the price level would increase.

172. In real-business-cycle theory, changes in the

173.

Refer to the graph. It is given that the economy is at an initial equilibrium at point A. In the

mainstream economic view, the effect of a significant increase in productivity on the economy

can best be represented by a shift from

174.

Refer to the graph. Assume that the economy is in initial equilibrium where AD1 intersects

ASLR1. If the economy experiences a change in technology that increases productivity and

resources, then real-business-cycle theory would suggest that this macroeconomic instability

would eventually produce a new equilibrium at point

175.

Refer to the graph. Assume that the economy was initially in equilibrium at point A. If there is a

significant technological innovation in the economy, then according to real-business-cycle

theory, aggregate

176.

Coordination failures occur when people lack some way to jointly coordinate their actions

to reach a(n)

39–80

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: II

Topic:

What Causes Macro Instability?

177.

If households and firms cut back on spending because they expect other households and

firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an

example of

178.

If the economy diverges from its full-employment output, new classical economics would

suggest that