39-112
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written consent of McGraw-Hill Education.
Difficulty:
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?
245.
So-called market monetarists suggest that the Fed, based on economic performance data
over the past many decades, should aim for which of the following targets?
246.
“Targeting the forecast” is the policy that best describes which of the following views?
True / False Questions
247.
Mainstream economists identify wage-price rigidities as one cause of economic
instability.
248.
Mainstream economists believe that economic instability is primarily due to unexpected
changes in consumer spending.
249.
The mainstream view is that macro instability is caused by the volatility of the money
supply, which constantly shifts the aggregate demand curve around.
250.
Mainstream economists think that the best way to stabilize the economy is to shift
aggregate supply.
39-114
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written consent of McGraw-Hill Education.
FA LSE
251.
Monetarists argue that government policy interference in the economy is the primary cause
of macroeconomic instability.
252.
In the monetarist view, the economy is inherently stable, but the mismanagement of
monetary policy creates instability.
253.
Monetarists argue that V in the equation of exchange is stable and, thus, a change in M will
bring about a direct and proportional change in nominal GDP.
254.
If M is $1,000, P is $8, and Q is 500, then V must be 6.
255.
The equation of exchange indicates that an increase in money supply will always lead only
to inflation.
256.
Real-business-cycle theory views changes in resource availability and technology as
shifting aggregate demand and thus causing macroeconomic instability.
257.
In real-business-cycle theory, real output can change without a change in the price level.
258.
A coordination failure is said to occur when people do not reach a mutually beneficial
equilibrium because they lack some way to jointly coordinate their actions to achieve it.
259.
New classical economists see the economy as incapable of self-correction when disturbed
and pushed away from its full-employment level of real output.
260.
Rational expectations theory assumes that both product and resource markets are
competitive and that wages and prices are flexible.
261.
In rational expectations theory, a fully anticipated change in aggregate demand or in the
price level results in no change in real output.
262.
Rational expectations theory suggests that people make consistent forecasting errors
regarding the effects of policy.
263.
Mainstream economists contend that monetary policy tends to be destabilizing, in contrast
to monetarists who believe that monetary policy is a stabilizing factor.
264.
An efficiency wage is an above-market wage that spurs greater work effort and gives the
firm more profits because of lower wage costs per unit of output.
265.
The “efficiency wage” is one possible explanation for rigidities in the economy that lead
to economic instability.
39-119
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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: 39-02 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?
266.
Monetarists recommend that the supply of money should be increased at a constant rate
each year, proportionate with the long-run growth of real output.
267.
If the money supply growth is set at a slower pace than the growth of real GDP, then
inflation will occur.
268.
Rational expectations theory suggests that changes in people’s expectations in response to
changes in fiscal and monetary policy changes will make such policy changes ineffective.
39-120
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written consent of McGraw-Hill Education.
Difficulty:
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?
269.
Monetarists believe that a monetary policy rule will tend to lead to inflation.
270.
The mainstream view of the economy since 1946 is that it has become more stable
because of the use of discretionary fiscal and monetary policies.
271.
Monetarists and rational expectations theorists both favor policy rules, and both argue
against discretionary policy.
39-121
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Rules or Discretion?
272.
Most economists today would agree with the view that “money doesn‘t matter” in
macroeconomic theory.
273.
Rational expectations theory allows for temporary changes in output due to expansionary
policy, whereas adaptive expectations theory holds that no such changes in output could occur.
274.
Mainstream economists have adopted some ideas from RET, and some rational
expectations assumptions are being incorporated into current macroeconomic models.
275.
Monetarists and rational expectations theorists believe that cost-push inflation is
impossible in the long run in the absence of excessive money supply growth.