978-1259723223 Test Bank TBChap039 Part 5

Topic:

Does the Economy Self-Correct?

179.

New classical economics suggests that in the long-run, changes in aggregate demand will

cause

180.

If there is an unanticipated increase in aggregate demand, then according to new classical

economics, the economy will self-correct with a(n)

181.

Within the aggregate demand-aggregate supply framework, monetarists argue that a change

in aggregate

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D. supply will have a large effect on the price level but a temporary effect on output.

182.

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

AS1. If there is an unanticipated increase in aggregate demand, then according to new classical

economics, the economy will self-correct with a

183.

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

AS1. If there is an unanticipated increase in aggregate demand and the economy self-corrects,

then the adaptive-expectations

adjustment path would go from point

184.

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

AS1. If there is an anticipated increase in aggregate demand to AD2, then, according to the

rational expectations economists, the path for adjustment runs from point

185.

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

AS1. If there is an unanticipated decrease in aggregate demand to AD2, then, in the view of

new classical economics, the economy will

186.

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

AS1. If there is an anticipated decrease in aggregate demand to AD2, then, according to

rational expectations theory, the path

for adjustment runs from point

187.

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

AS1. If there is a decrease in aggregate demand to AD2, then, according to mainstream

economists, if prices are flexible and

wages are not, this will result in an equilibrium at point

188.

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

AS1. If there is a decrease in aggregate demand to AD2, then, according to mainstream

economists, if prices and wages are not flexible, this will result in an equilibrium at point

189. Monetarists base their assessment of the speed of adjustment for self-correction in the

economy on

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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: II

Topic:

Does the Economy Self-Correct?

190. Which view of the macroeconomy suggests that the speed of adjustment for self-correction

would be very quick?

191. In the view of rational expectations theory,

192. In the rational expectations theory, a temporary change in real output could result from

193. One of the basic assumptions of rational expectations theory is that

194. From a rational expectations perspective, an easy money policy is likely to be completely

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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: II

Topic:

Does the Economy Self-Correct?

195. Within the aggregate demand-aggregate supply framework, a strict interpretation of

rational expectations theory suggests that a change in aggregate

196. Rational expectations theory considers the aggregate

197. Mainstream economists think that

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of real output.

C. the downward inflexibility of wages and prices may leave the economy stuck in a costly

recession for long periods.

D. significant changes in technology and resource availability cause macroeconomic

instability.

198. Which economic perspective typically views the market system as less than fully

competitive, and therefore subject to macroeconomic instability?

199. A mainstream criticism of rational expectations theory is that

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written consent of McGraw-Hill Education.

Learning Objective: 39-02 Discuss why new classical economists believe the economy

will ” self-correct” from aggregate demand and aggregate supply shocks.

Test Bank: II

Topic:

Does the Economy Self-Correct?

200. Which of the following contributes to the downward inflexibility of wages, according to

mainstream economists?

201. An efficiency wage is one that

202. Which of the following is a likely result of firms paying efficiency wages?

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203. One reason the lowest wage rate is not necessarily the same as the efficiency wage is that

workers might

204. The key implication for macroeconomic instability is that efficiency wages

205. The key implication for macroeconomic instability is that insider-outsider relationships in

the labor market

206. The notion that the annual rate of increase in the money supply should be equal to the

potential annual growth rate of real GDP best describes the

207. If the economy’s real output is growing by 2.5 percent a year, then, in order to maintain

price stability, a monetarist would most likely recommend that money supply should be

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written consent of McGraw-Hill Education.

Di f f icul t y :

01 Easy

Learning Objective: 39-03 Identify and describe the variations of the debate over ” rules”

versus ” discretion” in conducting stabilization policy.

Test Bank: II

Topic:

Rules or Discretion?

208. The policy rule recommended by monetarists is that the money supply should be increased

at the same rate as the potential growth in

209. To stabilize the economy, monetarists and rational expectations economists

210. Monetarists take the position that monetary policy

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D. should be based on discretion rather than rules.

211.

Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of

AD1 and AS1. Suppose that there is economic growth that shifts AS1 to AS2. With the shift

from AS1 to AS2, the monetary rule would call for an increase in the money supply such that

212.

Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of

AD1 and AS1. Suppose that there is economic growth that shifts AS1 to AS2. Because of the

shift from AS1 to AS2, a monetarist following a monetary rule would call for an increase in

aggregate demand such that the price level and quantity of real domestic output would be

213.

Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of

AD1 and AS1. Suppose that there is economic growth that shifts AS1 to AS2. Mainstream

economists would suggest that the application of a monetary rule to keep prices constant

might produce demand-pull inflation because the investment spending might

214.

Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of

AD1 and AS1. Suppose that there is economic growth that shifts AS1 to AS2. If the application

of a monetary rule is designed

to shift AD1 to AD3, but because of pessimistic business

expectations AD1 only shifts to AD2, then mainstream economists would suggest that the

actions to be taken to avoid deflation would be to implement a(n)

215.

Monetarists argue that when expansionary fiscal policy is financed through borrowing,