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Unformatted text preview: Chapter 36 - Current Issues in Macro Theory and Policy Chapter 36 Current Issues in Macro Theory and Policy Multiple Choice Questions 1. The equation underlying the mainstream view of macroeconomics is: A. MV = PQ . B. C a + I g + X n + G = GDP. C. S = a- b Y. D. GDP = P x Q . 2. The mainstream view is that macro instability is caused by: A. erratic growth of the nation's money supply. B. government interference in the economy. C. significant changes in investment spending. D. consumption "booms" and "busts." 3. According to mainstream macroeconomists, U.S. macro instability has resulted from: A. investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks. B. adherence by the Fed to a monetary rule. C. government's attempts to balance its budget. D. wide fluctuations in net exports. 4. The mainstream view of macro instability is that: A. changes in the money supply directly cause changes in aggregate demand and thus cause changes in real GDP. B. changes in investment shift the aggregate demand curve and thus cause changes in real GDP. C. bursts of innovation put the economy on an unsustainable growth path, eventually producing recession. D. changes in technology and resource availability are the two main sources of fluctuations of real GDP. 36-1 Chapter 36 - Current Issues in Macro Theory and Policy 5. Economist Milton Friedman is most closely associated with: A. Keynesian economics. B. the rational expectations theory. C. supply-side economics. D. monetarism. 6. Monetarists believe that: A. prices and wages are inflexible or sticky. B. both product and resource markets are monopolistic. C. velocity is relatively stable. D. the economy is more stable when active fiscal and monetary policy are used. 7. According to monetarists: A. changes in the money supply are the primary cause of changes in the price level. B. an expansionary fiscal policy will lower interest rates and overstimulate the economy. C. changes in the velocity of money are more important than changes in the money supply in causing the level of economic activity to change. D. the supply of money changes in response to changes in the levels of real output and prices. 8. The basic equation of monetarism is: A. MV = PQ . B. S a + T + M = I g + G + X n . C. V = M /PQ. D. C a + I g + X n + G = GDP. 9. The equation of exchange indicates that: A. MV = PQ . B. other things equal, an increase in the demand for money will increase P and/or Q . C. the velocity and the supply of money vary directly with one another. D. MP = VQ . 36-2 Chapter 36 - Current Issues in Macro Theory and Policy 10. If M is $400, P is $4, and Q is 300, then V must be: A. 1.33. B. 3. C. 5.33. D. 100. 11. In the equation of exchange, the level of aggregate expenditures is indicated by: A. MV ....
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