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Chapter 19 - Current Issues in Macro Theory and Policy
54. Refer to the above diagram. Rational expectations theory says that a fully anticipated shift
in aggregate demand from AD1 to AD2 will:
55. Refer to the above diagram. Rational expectations theory says that a fully anticipated
decrease in aggregate demand from AD2 to AD1 will:
56. Refer to the above 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:
Chapter 19 - Current Issues in Macro Theory and Policy
57. Rational expectations theory assumes that:
58. According to new classical economists, the:
59. New classical economists say that an unanticipated increase in aggregate demand first:
Chapter 19 - Current Issues in Macro Theory and Policy
60. New classical economists say that an unanticipated decrease in aggregate demand first:
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:
Chapter 19 - Current Issues in Macro Theory and Policy
63. Refer to the above 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:
Chapter 19 - Current Issues in Macro Theory and Policy
64. Refer to the above 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 above 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:
Chapter 19 - Current Issues in Macro Theory and Policy
66. Refer to the above 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":
68. In new classical economics, the change in output caused by a "price-level surprise":
Chapter 19 - Current Issues in Macro Theory and Policy
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:
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 ________.
Chapter 19 - Current Issues in Macro Theory and Policy
72. Refer to the above 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:
Chapter 19 - Current Issues in Macro Theory and Policy
73. Refer to the above diagram and assume the economy initially is in equilibrium at point a.
Suppose the aggregate demand declines from AD1 to AD2 and the economy moves from a to
c. In the mainstream view, the resulting decline in the price level need not shift the short-run
aggregate supply curve from AS1 to AS2 because:
74. If prices and wages are inflexible downward, a decrease in aggregate demand will:
75. An efficiency wage is:
Chapter 19 - Current Issues in Macro Theory and Policy
76. An efficiency wage is:
77. Refer to the above table. At the $8 wage, labor cost per-unit of output is:
Chapter 19 - Current Issues in Macro Theory and Policy
78. Refer to the above 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:
Chapter 19 - Current Issues in Macro Theory and Policy
81. If firms are paying efficiency wages, they:
82. In the insider-outsider theory:
83. In the insider-outsider theory:
Chapter 19 - Current Issues in Macro Theory and Policy
84. Suppose laid off workers and other qualified unemployed workers offer to work for less
than the wages being paid existing employed workers, but employers do not hire these
workers for fear that existing workers will refuse to cooperate with them. This situation best
describes the:
85. The insider-outsider theory implies that:
86. Which of the following pairs help explain why self-correction from a decline in aggregate
demand in the economy may be slow rather than rapid?
Chapter 19 - Current Issues in Macro Theory and Policy
87. The traditional monetary rule is the idea that:
88. Adherents of the traditional monetary rule advocate that the:
89. Adherents of the traditional monetary rule say that the supply of money should be:
Chapter 19 - Current Issues in Macro Theory and Policy
90. Answer this question on the basis of the above diagram and the equation of exchange.
Assume that the velocity of money is constant at 4. Suppose that the increase of aggregate
supply from AS1 to AS2 indicates the economy's average increase in real output per year.
According to monetarists, the proper monetary rule for price stability would be to increase the
money supply by:
Chapter 19 - Current Issues in Macro Theory and Policy
91. Monetarists and rational expectations theorists generally agree that:
92. According to monetarists, an expansionary fiscal policy:
93. The crowding-out effect refers to the possibility that:
