Chapter 19 – Current Issues in Macro Theory and Policy
94. According to monetarists, an expansionary fiscal policy is a weak stabilization tool
because:
95. Assume there is an increase in government spending and a reduction in net taxes. With a
specific money supply, the consequent:
Chapter 19 – Current Issues in Macro Theory and Policy
96. According to monetarists, a fiscal deficit will be associated with an increase in real
output:
97. The rational expectations perspective suggests that:
Chapter 19 – Current Issues in Macro Theory and Policy
98. The theory of rational expectations concludes that:
99. In comparing monetarism and rational expectations theory we find that:
100. Over recent years, economists holding monetarist views have replaced their call for a
monetary rule with a call for:
Chapter 19 – Current Issues in Macro Theory and Policy
101. Proponents of inflation targeting generally think that:
102. Which of the following groups of economists is most likely to favor annually balanced
Federal budgets?
103. According to mainstream economists, the Fed’s adherence to a traditional monetary rule
rather than to discretionary monetary policy is likely to:
Chapter 19 – Current Issues in Macro Theory and Policy
104. According to mainstream economists, a restrictive monetary policy might be frustrated,
wholly or in part, by:
105. Mainstream economists favor:
106. Mainstream economists contend that, as stabilization tools:
Chapter 19 – Current Issues in Macro Theory and Policy
107. Most mainstream macroeconomists oppose a strict requirement to balance the Federal
budget annually because they conclude that such a requirement would:
108. Which of the following ideas of the rational expectations theory has been absorbed into
mainstream macroeconomics?
109. The view that excessive growth of the money supply over long periods leads to
inflation:
Chapter 19 – Current Issues in Macro Theory and Policy
110. Mainstream macroeconomics has embraced the:
111. Modern mainstream macroeconomists agree with the monetarists that:
112. Which of the following perspectives believes that both wages and prices are stuck in the
immediate short run, and that prices are inflexible downward but flexible upward?
Chapter 19 – Current Issues in Macro Theory and Policy
113. Which of the following groups of economists believe that cost-push inflation is
impossible in the long run without excessive monetary growth?
114. (Consider This) The 2007-2009 recession began with reductions in investment and
consumption spending, precipitated by a financial crisis. This explanation for the recession is
consistent with:
Chapter 19 – Current Issues in Macro Theory and Policy
115. (Consider This) Monetarists claim that the financial crisis and resulting 2007-2009
recession were caused largely by:
116. (Consider This) According to economist Abba Lerner (1903-1982), fiscal and monetary
policy is analogous to:
Chapter 19 – Current Issues in Macro Theory and Policy
117. (Consider This) According to economist Milton Friedman (1912-2006), the source of
instability in the economy could be thought of as a:
118. (Last Word) The proposed monetary rule that would specify how the Fed should respond
to changes in GDP and inflation rates is called the:
119. (Last Word) The key policy target in the Taylor rule is the:
Chapter 19 – Current Issues in Macro Theory and Policy
120. (Last Word) According to the Taylor rule, if real GDP rises 1 percent above potential
GDP, the Fed should raise the Federal funds rate, relative to the current rate of inflation, by:
121. (Last Word) According to the Taylor rule, if inflation rises 1 percent above a target rate
of 2 percent, the Fed should raise the Federal funds rate, relative to the current rate of
inflation, by:
122. (Last Word) Suppose that real GDP falls to 2 percent below potential GDP. Then,
according to the Taylor rule, the Fed should reduce the Federal funds, relative to the current
rate of inflation, by:
Chapter 19 – Current Issues in Macro Theory and Policy
123. Monetarists say the velocity of money is highly variable and there is no close link
between the money supply and the level of economic activity.
124. According to monetarists, discretionary monetary policy has been a major source of
economic instability.
125. The equation of exchange is MV = PQ.
Chapter 19 – Current Issues in Macro Theory and Policy
126. Mainstream macroeconomists see two main sources of macroeconomic instability:
changes in investment spending and, occasionally, adverse aggregate supply shocks.
127. In the theory of coordination failures, shifts of the nation’s long-run aggregate supply
curve are the main cause of business cycles.
128. The real-business cycle theorists see aggregate supply as the “active” factor in causing
business cycles and aggregate demand as a “passive” factor.
129. The “real” factors in the real-business cycle theory include resource availability and
technology.
Chapter 19 – Current Issues in Macro Theory and Policy
130. The idea of coordination failures suggests the possibility of less-than-desirable price-
level and real-output equilibriums in the economy.
131. The idea that the economy will “self-correct” when confronted with changes in aggregate
demand is associated with new classical economics.
132. In the new classical theory, a fully anticipated change in aggregate demand and the price
level will temporarily change real output, but an unanticipated change will not.
133. Mainstream economists say that recessions are unlikely to occur today because prices
and wages are highly flexible downward.
Chapter 19 – Current Issues in Macro Theory and Policy
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.