Chapter 15 - Twentieth-Century Economic Theory

1		Statement I: The equation of exchange is identical to the quantity theory of money. Statement II: The equation of exchange is the basis for Keynesian economics.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
2		According to the crude quantity theory of money, if the money supply rises, then
			A)	the price level will rise by a greater percentage.
			B)	the price level will rise by the same percentage.
			C)	the price level will rise by a smaller percentage.
			D)	the price level will stay the same.
			E)	the price level will fall.
3		According to the sophisticated quantity theory of money, if the money supply rises during a period of considerable unemployment,
			A)	most, if not all of this increase will be reflected in an increase in production.
			B)	the price level will rise by the same percentage.
			C)	the price level will be unchanged.
			D)	the price level will fall.
4		According to the classical economists, if there were a recession,
			A)	we would need to raise the rate of growth of the money supply.
			B)	we would need to raise government spending and cut taxes.
			C)	we would need to buy less for foreigners.
			D)	the recession would cure itself without government intervention.
5		The problem we have during a recession or depression, said John Maynard Keynes, is
			A)	inadequate aggregate supply.
			B)	inadequate aggregate demand.
			C)	federal budget deficits.
			D)	a too rapid rate of monetary growth.
6		John Maynard Keynes advocated running budget deficits during times of
			A)	prosperity.
			B)	inflation.
			C)	recession.
7		The key to stable economic growth is a constant rate of growth in the money supply is a basic proposition of
			A)	the classicals.
			B)	the Keynesians.
			C)	the supply-siders.
			D)	the rational expectationists.
			E)	the monetarists.
8		The monetary rule is to
			A)	balance the federal budget every year.
			B)	increase the money supply at a constant rate.
			C)	raise the rate of growth of the money supply during recessions; slow it during economic booms.
			D)	let the Federal Reserve make all the basic economic decisions.
9		There is some evidence that, with respect to hours worked,
			A)	women are more likely to be responsive to an income tax cut than men.
			B)	men are more likely to be responsive to an income tax cut than women.
			C)	men and women would be equally responsive to an income tax cut.
10		The work effect and the saving and investment effect are basic tenets of
			A)	classical economics.
			B)	Keynesian economics.
			C)	supply side economics.
			D)	the rational expectationist school of economics.
			E)	the monetarists.
11		The Laffer Curve shows how, by cutting tax rates, the federal government
			A)	would increase its deficit.
			B)	would increase its revenue.
			C)	would increase employment.
			D)	would lower the rate of inflation.
12		That individuals and business firms learn through their experience to anticipate the consequences of changes in monetary and fiscal policy is a basic belief of the _______ school of economics.
			A)	classical
			B)	Keynesian
			C)	monetarist
			D)	rational expectationist
			E)	supply side
13		The rational expectationists believe that if there were a recession, it would be best for the government to
			A)	lower taxes.
			B)	raise government spending.
			C)	avoid causing a budget deficit.
			D)	do nothing.
14		According to the efficiency wage theory, an efficient wage is one which
			A)	minimizes the firm's labor cost per unit of output.
			B)	maximizes the efficiency of each hour of labor.
			C)	adds more to labor output than to cost of labor input.
			D)	pays the minimum legal hourly wage.
15		Statement I: The insider-outsider theory provides and explanation as to why wages are not flexible downward. Statement II: Labor contracts provide an explanation as to why wages are not flexible downward.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.