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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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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