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Quiz 3
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1
According to classical economists, the:
A)aggregate demand curve is downward sloping and the aggregate supply curve is vertical
B)aggregate demand curve is downward sloping and the aggregate supply curve is upward sloping
C)aggregate demand curve is vertical and the aggregate supply curve is upward sloping
D)aggregate demand curve is vertical and the aggregate supply curve is horizontal
2
Which school of thought holds that decreases in aggregate demand decrease real output but leave the price level largely unaffected?
A)Monetarism
B)New Classical theory
C)Real Business Cycle theory
D)Keynesian
3
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
4
In the equation of exchange, the term "MV" refers to:
A)"money value"
B)"monetary volatility"
C)"maximum value"
D)money supply times the velocity of money
5
If the velocity of money is constant, it must be the case that a 10% increase in:
A)the money supply will increase nominal GDP by 10%
B)the money supply will increase real GDP by 10%
C)the price level will increase nominal GDP by 10%
D)the price level will increase real GDP by 10%
6
Monetarists argue that the amount of money the public wants to hold depends primarily on the interest rate.
A)True
B)False
7
If nominal GDP is $900 billion and the velocity of money is 4:
A)the money multiplier is ¼
B)the supply of money is $225 billion
C)the supply of money is $3600 billion
D)the price level is $225
8
According to the real business cycle view of macro instability, an increase in aggregate supply will increase output without driving down the price level because:
A)the velocity of money will increase in proportion to the increase in real output
B)money supply and demand both increase, shifting aggregate demand to the right
C)government undertakes offsetting changes in fiscal policy to keep the price level high
D)the aggregate supply curve is horizontal up to the full-employment potential level
9
Monetarist thought differs from the new classical rational expectations view in that the latter assumes:
A)the economy will eventually will 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
10
Support for a monetary rule comes primarily from:
A)Keynesians and monetarists
B)Monetarists and real business cycle theorists
C)Rational expectations theorists and real business cycle theorists
D)Rational expectations theorists and monetarists





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