Economics (McConnell), 18th Edition

Chapter 36: Current Issues in Macro Theory and Policy

Quiz

1
"A recession became the Great Depression because the Fed allowed the money supply to fall by 35% during the 1930s." This statement is most closely associated with which school of thought?
A)Mainstream view
B)Real business cycle theory
C)Rational expectations theory
D)Monetarism
2
The inability of outsiders to underbid insiders for jobs suggests that:
A)the economy will self-correct only slowly, if at all
B)the natural rate of unemployment will fall during a recession
C)the Phillips curve will be vertical
D)work-place morale can be improved with "two-tier" wage systems
3
The new classical view suggests that:
A)wages are inflexible downward
B)coordination failures lead to persistent unemployment
C)the long-run aggregate supply curve is vertical
D)the long-run Phillips curve is downward sloping
4
Suppose nominal GDP is $5000 billion, real GDP is $4000 billion, and the money supply is $1000 billion. In this hypothetical economy, the velocity of money is:
A)5
B)4
C)4.5
D)$1000
5
According to the monetarist view:
A)changes in money velocity are small and predictable
B)velocity is inversely proportional to nominal GDP
C)the equation of exchange holds true only at full-employment GDP
D)adverse supply shocks are the primary cause of monetary instability
6
Use the following diagram to answer the next question.
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According to the real business cycle theory of recessions, a leftward shift in aggregate supply as illustrated in the diagram:
A)would be caused by the decrease in aggregate demand from AD1 to AD2
B)would lead to a subsequent decrease in aggregate demand from AD1 to AD2
C)would cause a drop in resource prices and lead to a subsequent return to the original aggregate supply curve
D)could never happen
7
According to the new classical view, shifts in aggregate demand:
A)are always anticipated, and as such, have no effect on real output
B)are never anticipated, and as such, have no effect on real output
C)have no effect on real output if they are fully anticipated
D)have no effect on real output if they are unanticipated
8
According to the "coordination failure" theory, a recession:
A)cannot occur if demand shocks are fully anticipated
B)is a direct outcome of failed macro policies
C)can occur if everyone expects everyone else to curtail spending
D)is typically caused by adverse aggregate supply shocks
9
According to the mainstream view of the economy, macro instability arises primarily from changes in aggregate demand caused by:
A)changes in the money supply
B)adverse productivity shocks
C)changes in investment spending
D)changes in fiscal policy
10
Monetarist thought differs from the new classical rational expectations view in that the latter assumes:
A)the economy will eventually self-correct
B)the velocity of money is unstable
C)a gradual adjustment of expectations as events and experience unfold
D)an almost instantaneous adjustment of expectations in response to announced changes in policy
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